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 June 30, 2002
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)
(800) 337-6642
(Issuer's Telephone Number)
Number of shares of common stock outstanding at July 31, 2002: 34,516,894
INDEX TO THE FORM 10-QSB
For the quarterly period ended June 30, 2002
PART I - FINANCIAL INFORMATION ................................................1
Item 1. Financial Statements ..................................................1
Item 2. Management's Discussion and Analysis or Plan of Operation ............11
PART II - OTHER INFORMATION ..................................................20
Item 1. Legal Proceedings ....................................................20
Item 2. Changes in Securities ................................................20
Item 6. Exhibits and Reports on Form 8-K .....................................21
Signatures ...................................................................22
Exhibit Index ................................................................23
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
June 30, Dec. 31,
2002 2001
--------------------------------------------------------------------------------
(unaudited) (Note 1)
$ $
ASSETS
Current assets
Cash and cash equivalents 404,277 1,012,430
Restricted cash 82,500 80,000
Accounts receivable (less allowance
for doubtful accounts of $34,474
(2001-$26,128)) 85,598 263,747
Government grant receivable 30,268 26,457
Inventory (note 4) 469,584 519,516
Prepaid expenses 55,302 38,643
Other receivable 9,009 18,241
--------------------------------------------------------------------------------
1,136,538 1,959,034
Equipment, net 299,946 276,909
Patents and licenses, net 33,392 -
Goodwill 741,596 741,596
--------------------------------------------------------------------------------
2,211,472 2,977,539
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 5) 100,412 238,667
Accounts payable and accrued
liabilities (note 6) 1,270,934 658,583
Product warranty 33,000 31,500
Obligations under capital leases 18,351 45,900
--------------------------------------------------------------------------------
1,422,697 974,650
Loans payable - 74,451
Obligations under capital leases 3,654 3,488
--------------------------------------------------------------------------------
Total liabilities 1,426,351 1,052,589
--------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $0.001 par value
100,000,000 authorized, 33,616,895
(2001 - 30,915,704) issued and
outstanding 33,617 30,916
Additional paid-in capital 15,158,267 14,896,893
Share subscription receivable (90,600) (90,600)
Deferred stock compensation (26,974) (199,198)
Accumulated deficit (14,415,321) (12,830,289)
Other accumulated comprehensive
gain 126,132 117,228
--------------------------------------------------------------------------------
785,121 1,924,950
--------------------------------------------------------------------------------
2,211,472 2,977,539
--------------------------------------------------------------------------------
Commitments and contingent liabilities (note 12)
Subsequent events (note 11)
See accompanying notes to consolidated financial statements
1
UNITY WIRELESS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(expressed in U.S. dollars)
(Unaudited)
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
Net sales: 273,756 570,559 1,756,250 1,963,506
Cost of goods sold (3 months data includes stock-based
compensation expenses $520 in 2002 and nil in 2001; 6 months
data includes stock-based compensation (recovery) expense
$(19,221) in 2002 and $350 in 2001) 528,908 336,802 1,686,478 1,382,802
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(255,152) 233,757 69,772 580,704
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Expenses:
Research and development (3 months data includes stock-based
compensation expenses $8,905 in 2002 and $58,621 in 2001; 6
months data includes stock-based compensation (recovery)
expense $(56,433) in 2002 and $33,985 in 2001) 584,135 218,304 856,628 312,883
Sales and marketing (3 months data includes stock-based
compensation (recovery) expenses $(397) in 2002 and $36,870 in
2001; 6 months data includes stock-based compensation
(recovery) expense $(61,123) in 2002 and $25,897 in 2001) 177,863 139,987 216,649 180,672
Less: Government assistance (65,348) - (65,348) -
Depreciation and amortization 22,944 73,250 46,372 141,483
Exchange (gain) loss 13,375 (20,320) 22,127 (75,318)
Interest expense 3,536 1,151 4,969 2,219
General and administrative (3 months data includes stock-based
compensation expenses $30,002 in 2002 and $218,678 in 2001; 6
months data includes stock-based compensation (recovery)
expense $(84,737) in 2002 and $165,183 in 2001) 391,875 661,840 651,005 835,350
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1,128,380 1,074,212 1,732,402 1,397,289
-----------------------------------------------------------------------------------------------------------------------------------
Operating loss for the period (1,383,532) (840,455) (1,662,630) (816,585)
Interest income 1,289 6,069 2,671 34,639
Other income 198 616 74,927 9,278
Provision for income taxes 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (1,382,045) (833,770) (1,585,032) (772,668)
-----------------------------------------------------------------------------------------------------------------------------------
Gain from discontinued operations 0 217,966 0 267,504
-----------------------------------------------------------------------------------------------------------------------------------
Loss for the period (1,382,045) (615,804) (1,585,032) (505,164)
Comprehensive loss:
Loss for the period (1,382,045) (615,804) (1,585,032) (505,164)
Currency translation adjustment 3,666 3,948 8,904 116,828
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Comprehensive loss (1,378,379) (611,856) (1,576,128) (388,336)
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (note 8):
Continuing operations (0.043) (0.032) (0.050) (0.030)
Discontinued operations - 0.008 - (0.010)
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (0.043) (0.024) (0.050) (0.020)
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
2
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in U.S. dollars)
(Unaudited)
Six months ended June 30,
2002 2001
Operating activities:
Loss for period (1,585,032) (505,164)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of patents and licenses 455 -
Depreciation of equipment 45,917 48,783
Amortization of goodwill - 92,700
Shares issued for service - 7,000
Stock based compensation (221,514) 225,415
Gain on settlement of debt (74,451) -
Changes in non-cash working capital
relating to operations:
Accounts receivable 178,149 68,716
Government grant receivable (3,811) 13,733
Inventory 49,923 182,741
Prepaid expenses (16,659) (19,521)
Accounts payable and accrued
liabilities 612,351 (287,541)
Product warranty - (471,700)
--------------------------------------------------------------------------------
Net cash used in operating activities (1,014,663) (644,838)
Investing activities:
Acquisition of equipment (56,863) (77,278)
Increase in patents and licenses (33,847) -
Other receivables 9,232 30,750
--------------------------------------------------------------------------------
Net cash used in investing activities (81,478) (46,528)
Financing activities:
Repayment of loan receivable - 118,824
Restricted cash (2,500) 20,000
Bank overdraft (138,255) (34,872)
Repayment of loan payable - (83,642)
Cash proceeds from issued and to be
issued common shares 714,167 -
Share issue costs (56,354) -
Obligations under capital lease (27,383) -
--------------------------------------------------------------------------------
Net cash provided by financing activities 489,675 20,310
Effect of foreign exchange rate changes
on cash and cash equivalents (1,687) 117,662
Increase (decrease) in cash (608,153) (553,394)
Cash, beginning of period 1,012,430 2,002,084
Cash, end of period 404,277 1,448,690
See accompanying notes to consolidated
financial statements
3
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 a
complete annual set of consolidated financial statements. In the opinion of
management, all adjustments (consisting of normally recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ending June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2002.
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, 2001. Except as indicated in
note 2, the accounting principles applied in the preparation of these
interim consolidated financial statements are consistent with those applied
in the consolidated financial statements filed with the Company's annual
report.
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. 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.
2. Change in accounting policies:
In June 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards ("FAS") 141, Business Combinations, and FAS 142,
Goodwill and other Intangible Assets. Under FAS 141, intangible assets
acquired in a business combination should be identified and recognized
apart from goodwill when they arise from either contractual or other legal
rights or they can be separated from the acquired enterprise and sold,
transferred, licensed, rented or exchanged, either individually or with a
group of related assets or liabilities. Under FAS 142, goodwill and
intangible assets having indefinite lives are not amortized and tested for
impairment at least annually. Intangible assets with definite lives are
amortized over their estimated useful lives.
The Company has adopted FAS 141 and 142 effective January 1, 2002. As of
the date of adoption, the Company had unamortized goodwill in the amount of
$741,596. This change in accounting policy resulted in a reduction in
amortization expense related to goodwill of $92,700 ($0.003 per share), for
the six months ended June 30, 2002. In accordance with the requirements of
FAS 142, this change in accounting policy is not applied retroactively and
the amounts presented for prior periods have not been restated for this
change. If this change in accounting policy had been applied retroactively,
net loss for the six months ended June 30, 2001 would have decreased by
$92,700 to $412,464 and the net loss for the three months ended June 30,
2001, would have decreased by $46,350 to $569,454.
4
3. Significant Accounting Policies
Goodwill
Goodwill is the residual amount that results when the purchase price of an
acquired business exceeds the sum of the amounts allocated to the
identifiable assets acquired, less liabilities assumed, based on their fair
values. Goodwill is allocated as of the date of the business combination to
the Company's reporting units that are expected to benefit from the
synergies of the business combination.
Goodwill is not amortized and is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the goodwill
might be impaired. The impairment test is carried out in two steps. In the
first step, the carrying amount of the reporting unit is compared with its
fair value. When the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not to be impaired and
the second step of impairment test is unnecessary. The second step is
carried out when the carrying amount of a reporting unit exceeds its fair
value, in which case the implied fair value of the reporting unit's
goodwill is compared with its carrying amount to measure the amount of the
impairment loss, if any. The implied fair value of the reporting unit's
goodwill is determined in the same manner as the value of goodwill is
determined in a business combination described in the preceding paragraph,
using the fair value of the reporting unit as if it was the purchase price.
When the carrying amount of a reporting unit exceeds the implied fair value
of the goodwill, an impairment loss is recognized in an amount equal to the
excess and is presented as a separate line item in the earnings statement
before extraordinary items and discontinued operations.
The Company considers itself to operate as a single reporting unit. At June
30, 2002, the Company had completed its first step assessment as described
above, and had concluded that the fair value of the reporting unit exceeds
its carrying value and accordingly, no impairment of the carrying value of
goodwill is required to be recorded. The Company intends to carry out its
annual assessment of goodwill commencing in December of 2002.
Patents
Consideration paid for the patents is amortized on a straight-line basis
over three years commencing with the date the patents are granted.
License fees
Consideration paid for license fees is amortized on a straight-line basis
over the shorter of the term of the license or three years.
Government assistance
Government assistance consists of government grants. The Company follows
the cost reduction method of accounting for government assistance, whereby
the benefit of the assistance is recognized as a reduction in the cost of
the related asset or expenditure when there is reasonable assurance the
government grants will be received. Certain government assistance has a
contingent liability for repayment. The liability to repay government
assistance is recognized in the period in which conditions arise that will
cause government assistance to be repayable.
5
Stock Compensation Expense (Recovery)
The Company 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 Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and have
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 options are earned. If the exercise price of fixed
employee stock option award is reduced or if the exercise price is not
fixed in the functional currency of the Company or in the currency the
employee is paid, the award is accounted for as a variable award until the
award is exercised, forfeited, or expires unexercised. The Company measures
variable plan stock compensation as the amount by which the quoted market
value of the common shares of the Company covered by the grant exceeds the
option price with changes in the market price included in the measurement
of loss.
4. Inventory:
The components of inventory consist of the following:
June 30, December 31,
2002 2001
$ $
--------------------------------------------------------------------------------
Raw materials 259,279 261,220
Finished goods 210,305 258,296
--------------------------------------------------------------------------------
469,584 519,516
================================================================================
5. Bank indebtedness
In February 2002, the HSBC Bank of Canada revolving operating line was
replaced with a U.S. $82,500 (Cdn$125,000) operating line from CIBC Bank,
at an interest rate of prime and secured by a U.S. $82,500 (Cdn$125,000)
guaranteed investment certificate and a general security interest in all
the Company's assets. In March 2002, the Company arranged for a US$750,000
accounts receivable credit facility with CIBC at an interest rate of CIBC
prime plus 1% and an administrative fee of 1% of invoice value.
6
6. Accounts payable and accrued liabilities:
June 30, December 31,
2002 2001
$ $
--------------------------------------------------------------------------------
Trade accounts payable 1,068,836 415,164
Accrued liabilities 202,098 243,419
--------------------------------------------------------------------------------
1,270,934 658,583
================================================================================
7. Other Income:
During the six months ended June 30, 2002, the Company recognized a gain of
$74,451 on an extinguishment of debt which is included in other income.
8. Earnings per share data:
The following table sets forth the computation of basic and diluted income
(loss) per share:
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------------------------
Numerator
Loss from continuing operations ($) (1,382,045) (833,770) (1,585,032) (772,668)
Gain from discontinued operations ($) - 217,966 - 267,504
Net loss for the period ($) (1,382,045) (615,804) (1,585,032) (505,164)
Denominator
Weighted average number of common shares outstanding 32,348,299 25,745,626 31,635,959 25,744,396
Basic and diluted loss per common share ($):
Continuing operations (0.043) (0.032) (0.050) (0.030)
Discontinued operations - 0.080 - 0.010
Basic and diluted loss per common share ($): (0.043) (0.024) (0.050) (0.020)
===================================================================================================================================
For the 6-month period ended June 30, 2002, 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.
9. 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 ("1999 Plan") pursuant to which 5,000,000 common shares were reserved
for issuance. On July 5, 2000 the shareholders approved a change in the
maximum number of options issuable under this plan to 20% of the number of
common shares outstanding including shares of common stock previously
issued under the plan. As of June 30, 2002 this maximum number was
7,345,666. On August 8, 2002 the Board of Directors further amended and
restated the 1999 Plan to create a new plan ("2002 Plan"). The 2002 Plan
authorizes the maximum issuance of 6,903,379 shares of the Company's Common
Stock upon exercise of options granted under the 2002 Plan.
7
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, 2001 3,388,250 4,340,750 0.20
Options granted (285,000) 285,000 0.33
Options expired 386,666 (386,666) 0.18
Options exercised - (383,334) 0.17
Increase in reserve for issuance 722,389 - -
------------------------------------------------------------------------------------------------
Balance, June 30, 2002 4,212,305 3,855,750 0.24
================================================================================================
Had compensation cost been determined based on the fair value at the grant
dates for those options issued to employees, consistent with the method
described in SFAS No. 123, the Corporation's loss and loss per common share
would have been increased to the pro forma amounts indicated below.
================================================================================
Six months ended June 30, 2002
--------------------------------------------------------------------------------
Income (loss) for the period, as reported $(1,585,032)
Pro forma loss (1,967,900)
================================================================================
Basic and diluted loss per common shares,
net as reported $(0.050)
Pro forma (0.062)
================================================================================
The fair value of each option granted during the six months ended June 30,
2002, was estimated on the date of the grant using Black-Scholes
option-pricing model with the following weighted-average assumptions: no
dividend yield; volatility of 156% based on weekly stock price; risk-free
interest rate of 3.25% and an expected life of four years.
The weighted-average fair value of options granted during these months
ended June 30, 2002 was $0.26.
10. Segmented information:
a. Segment information:
During the six months ended June 30, 2002, the Company is operating only in
the RF power amplifier product segment. During the six months ended June
30, 2001, the Company was operating in the wireless product segment and the
RF power amplifier product segment.
8
b. Geographic information ($000):
Substantially all assets and operations are in Canada. A summary of sales
by region, based on location of customers, is as follows:
Six months ended June 30,
================================================================================
2002 2001
--------------------------------------------------------------------------------
Korea $ 987 $1,821
China 280 0
Sweden 42 0
Canada 0 17
United States 447 126
--------------------------------------------------------------------------------
Total sales $1,756 $1,964
================================================================================
c. Major customers ($000):
The approximate sales to major customers is as follows:
Six months ended June 30,
================================================================================
2002 2001
--------------------------------------------------------------------------------
Customer A $ 612 $ 852
Customer B 331 810
Customer C 386 0
================================================================================
11. Warrants:
As at June 30, 2002, the Company has warrants outstanding to purchase
8,102,337 common shares at $0.29 to $0.38 per share.
5,147,551 warrants, which were issued in December 2001 with an exercise
price of $0.30, may be callable for exercise by the Company at any time
after the closing price for the Company's common stock is equal to or
exceeds $0.75 for at least ten consecutive trading days. After the issuance
of these warrants, the share price level has not reached $0.75. These
warrants expire in December 2003. On July 2, 2002, 899,999 warrants were
exercised by certain shareholders at $0.30. In addition, 2,454,786
warrants, which were issued in April 2002, may be callable for exercise by
the Company at any time after the closing price for the Company's common
stock is equal to or exceeds $1.50 for at least ten consecutive trading
days. After the issuance of these warrants, the share price level has not
reached $1.50. These warrants expire in May 2003. On July 31, 2002, the
exercise price of the above 6,702,338 un-exercised warrants were re-priced
to Cdn$0.35 on the condition that warrant holders exercise their warrants
within a 30 day period, otherwise the original warrant terms would prevail.
6,565,409 of these repriced warrants had not been previously issued in
connection with the provision of employment or consulting services. As
well, if the closing price of the Company's shares is Cdn$0.437 or greater
for a period of 10 consecutive trading days, then the warrant holders must
exercise their warrants within 30 days otherwise the warrants will expire
of the 31st day.
9
Of the remaining 500,000 warrants, 403,128 warrants are fully vested of
which 250,000 expire on December 15, 2002 and 153,128 expire on March 31,
2005 and 96,872 warrants vest until December 31,2002 and expire on March
31,2005.
12. Commitments and contingent liabilities:
a. Lease commitments
The Company has the following future minimum lease commitments for premises
and equipment:
$000
----
2002 120
2003 186
2004 82
2005 54
2006 0
b. Legal proceedings
The Company is currently a party to an action in the Supreme Court of
British Columbia, Vancouver Registry, brought by an option holder seeking a
declaration that 500,000 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 in part on advise of legal counsel, that the ultimate
resolution of this contingency, to the extent not previously provided for,
will not have a material adverse effect on the financial condition of the
Company.
c. Contingent liability on sale of products
(i) Under a certain license agreement, the Company is committed to royalty
payments based on the sales of products using certain technologies. The
Company recognizes royalty obligations as determinable in accordance with
agreement terms.
(ii) Under an agreement with the Government's National Research Council
Canada IRAP (IRAP) program, the Company is eligible to receive
conditionally repayable government assistance amounting to Cdn$483,491 to
support the development of a multi-carrier linear power amplifier. During
the first six months ended June 30, 2002, the Company has claimed $65,348
(Cdn$99,012) which has been recorded as government grant income. Under the
terms of the agreement, an amount up to a maximum of Cdn$725,236 is to be
repaid at a rate of 1.5% of quarterly gross revenue commencing on September
1, 2003, on a quarterly basis.
10
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 our most recent financial
statements and notes appearing elsewhere in this Form 10-QSB; in the SB-2 filed
February 15, 2002; and the 10-KSB for Dec. 31, 2001 filed on March 29, 2002.
The financial statements have been prepared on the going concern basis
under which an entity is considered to be able to realize its assets and satisfy
its liabilities in the ordinary course of business. Operations to date have been
primarily financed by borrowing and equity transactions. Our future operations
are dependent upon the identification and successful completion of additional
long-term or permanent equity financing, the continued support of creditors and
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
our projected expenditures relative to our available cash and to seek additional
means of financing in order to satisfy our working capital and other cash
requirements. The auditor's report on the consolidated financial statements for
the fiscal year ended December 31, 2001 contained in the 10-KSB filed on March
29, 2002, 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.
Forward-Looking Statements
We use words like "expects," "believes," "intends," "anticipates," "plans,"
"targets," "projects" or "estimates" in this prospectus. When used, these words
and other, similar word and phrases or statements that an event, action or
result "will," "may," "could," or "should" occur, be taken or be achieved
identify "forward-looking" statements. We have made forward-looking statements
with respect to the following, among others:
o our goals and strategies;
o our expectations related to growth of the wireless telecommunication
industry in the 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 demand for our products;
o competition in the wireless telecommunications industry; and
o our anticipated results of operations.
We are making these forward-looking statements only as of the date of this
prospectus, based on our management's current beliefs and expectations. Our
forward-looking statements are subject to a number of risks and uncertainties
that could cause our actual results or actual events to differ materially from
those reflected in our forward-looking statements These risks and uncertainties
include, but are not limited to, changes in the economic and political
environments in the markets in which we conduct business, changes in technology,
increased competition and changes in the wireless telecommunications industry
and the other factors described under the heading "Risk Factors" on Exhibit 99.1
attached hereto. Forward-looking statements are by their nature subject to many
varied uncertainties and risks. Actual results could vary greatly.
11
Changes in accounting policies.
In June 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards ("FAS") 141, Business Combinations, and FAS 142, Goodwill
and other Intangible Assets. Under FAS 141, intangible assets acquired in a
business combination should be identified and recognized apart from goodwill
when they arise from either contractual or other legal rights or they can be
separated from the acquired enterprise and sold, transferred, licensed, rented
or exchanged, either individually or with a group of related assets or
liabilities. Under FAS 142, goodwill and intangible assets having indefinite
lives are not amortized and tested for impairment at least annually. Intangible
assets with definite lives are amortized over their estimated useful lives.
The Company has adopted FAS 141 and 142 effective January 1, 2002. As of
the date of adoption, the Company had unamortized goodwill in the amount of
$741,596. This change in accounting policy resulted in a reduction in
amortization expense related to goodwill of $92,700 ($0.003 per share), for the
six months ended June 30, 2002. In accordance with the requirements of FAS 142,
this change in accounting policy is not applied retroactively and the amounts
presented for prior periods have not been restated for this change. If this
change in accounting policy had been applied retroactively, net loss for the six
months ended June 30, 2001 would have decreased by $92,700 to $412,464 and the
net loss for the three months ended June 30, 2001 would have decreased by
$46,350 to $569,454.
Significant Accounting Policies
Following are the new accounting policies adopted during the six months
period ended June 30, 2002 and are in addition to the policies described in the
10-KSB for December 31, 2001 filed on March 29, 2002.
Goodwill
Goodwill is the residual amount that results when the purchase price of an
acquired business exceeds the sum of the amounts allocated to the identifiable
assets acquired, less liabilities assumed, based on their fair values. Goodwill
is allocated as of the date of the business combination to the Company's
reporting units that are expected to benefit from the synergies of the business
combination.
Goodwill is not amortized and is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the goodwill
might be impaired. The impairment test is carried out in two steps. In the first
step, the carrying amount of the reporting unit is compared with its fair value.
When the fair value of a reporting unit exceeds its carrying amount, goodwill of
the reporting unit is considered not to be impaired and the second step of
impairment test is unnecessary. The second step is carried out when the carrying
amount of a reporting unit exceeds its fair value, in which case the implied
fair value of the reporting unit's goodwill is compared with its carrying amount
to measure the amount of the impairment loss, if any. The implied fair value of
the reporting unit's goodwill is determined in the same manner as the value of
goodwill is determined in a business combination described in the preceding
paragraph, using the fair value of the reporting unit as if it was the purchase
price. When the carrying amount of a reporting unit exceeds the implied fair
value of the goodwill, an impairment loss is recognized in an amount equal to
the excess and is presented as a separate line item in the earnings statement
before extraordinary items and discontinued operations.
12
The Company considers itself to operate as a single reporting unit. At June
30, 2002, the Company had completed its first step assessment as described
above, and had concluded that the fair value of the reporting unit exceeds its
carrying value and accordingly, no impairment of the carrying value of goodwill
is required to be recorded. The Company intends to carry out its annual
assessment of goodwill commencing in December of 2002.
Patents
Consideration paid for the patents is amortized on a straight-line basis
over three years commencing with the date the patents are granted.
License fees
Consideration paid for license fees is amortized on a straight-line basis
over the shorter of the term of the license or three years.
Government assistance
Government assistance consists of government grants. The Company follows
the cost reduction method of accounting for government assistance, whereby the
benefit of the assistance is recognized as a reduction in the cost of the
related asset or expenditure when there is reasonable assurance the government
grants will be received. Certain government assistance has a contingent
liability for repayment. The liability to repay government assistance is
recognized in the period in which conditions arise that will cause government
assistance to be repayable.
Stock Compensation Expense (Recovery)
The Company 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 Company has elected
to continue to apply the intrinsic value-based method of accounting described
above, and have 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 options are earned .If the exercise price of fixed
employee stock option award is reduced or if the exercise price is not fixed in
our functional currency or in the currency the employee is paid, the award is
accounted for as a variable award until the award is exercised, forfeited, or
expires unexercised. The Company measures variable plan stock compensation as
the amount by which the quoted market value of the common shares of our stock
covered by the grant exceeds the option price with changes in the market price
included in the measurement of loss.
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. Most of our products are high power amplifiers,
defined as single channel power amplifiers used for sending signals from a
network to a terminal such as a cell phone. Most are used in repeaters which are
used to extend coverage in cellular telephone networks. Some products are also
used in base station equipment and some are multi-channel power amplifiers. One
product has been tested for digital television broadcasting in Korea, and one
product is for base stations used in wireless local loop applications. Wireless
local loop networks are sometimes referred to as "the last mile" solution -
unlike cellular phone systems which are mobile wireless networks, wireless local
loop is designed to deliver voice and high speed data (e.g., Internet) services
to fixed locations such as homes and small offices without the need for special
wiring via wireless communication devices.
Most of our initial sales were made through one representative in Korea. We
have only recently begun to open new markets beyond our initial sales in Korea,
and for 2002 again the Korean market is still expected to be the most
significant for us. Historically, we have generated over 90% of our revenues
from the Korean market. During the second quarter of 2002, the Korean market
contributed less than 10% of our revenues, while sales to new customers in
United States, China, Israel and Sweden increased. We anticipate that this trend
will continue.
13
We have started building long-term strategic alliances and partnerships to
assist in technology development which will help to extend our position in the
wireless communications market as well as reduce our exposure to shorter-term
projects. By signing multi-year development and supply agreements, we hope to
benefit from a more predictable revenue stream.
Results of Operations
(All amounts are in US dollars unless otherwise stated)
Three months Ended June 30, 2002 and June 30, 2001
Sales
Net sales of radio frequency amplifiers in the second quarter of 2002
decreased by 52%, or $296,803, to $273,756 from $570,559 in the second quarter
of 2001. The decrease resulted from a significant down turn in the wireless
telecommunications industry that resulted in slower sales of our products, our
strategic decisions to diversify geographically as well as by product type and
to develop and seek long-term customer supply contracts. As a result of this new
strategy and the fact that our products are customized in nature, there is an
approximate four month sales cycle from the time the engineering work starts
through the field trials phase, during which the customer orders small sample
orders and eventually when the order is placed by the customer. We estimate that
we are in the middle of the first sales cycle since we have targeted new
long-term customers. Additional factors contributing to the lower sales in the
second quarter of 2002 was the general world-wide softening and changing of the
market conditions in the wireless sectors and the delayed awarding of wireless
infrastructure contracts by the major Chinese telecom companies to which we had
made bids to the third quarter of 2002 from the originally planned second
quarter of 2002 roll-out. We anticipate that revenues will increase in the
second half of 2002 as we near the end of our initial refocused sales cycle.
Operating Expenses
Cost of goods sold in the second quarter of 2002 increased by 57%, or
$192,106, to $528,908 from $336,802 in the second quarter of 2001. The increase
was primarily due to increased wages & benefits, sub-contract labor and testing
equipment required for the large amount of samples that were produced and
shipped to potential long-term supply customers and a one time provision for
obsolete inventory that can no longer be used as newer component parts are now
required for our new technology RF amplifiers. We have subsequently refinanced
and reduced the amount of some of our test equipment, created more efficiency in
our staffing requirements and established a relationship with an outsource
manufacturing company. We expect to start outsourcing our larger orders during
the third quarter of 2002. We believe this will allow us to take advantage of
better purchasing power, reduce our inventory levels and ensure that a
consistent quality product is delivered on time. We anticipate that our cost of
good sold, as a percentage of sales, will be reduced during the second half of
2002 as a result of increased sales and outsourced manufacturing. Costs of goods
includes stock-based compensation expenses of $520 in the second quarter of 2002
versus $0 for the same period in 2001.
14
The gross margin of $(255,152) or (93)% of net sales for the second quarter
of 2002 represented decrease from a gross margin of 41% of net sales for the
second quarter of 2001. This decrease represented refocused sales strategy and
associated long sales cycle to potential long-term (e.g., three or more years)
supply customers which results in costs of goods sold exceeding revenue
generated by sales to long-term customers early in the relationship as sales
volumes start low and production costs start high as we develop custom
amplifiers of each customer's particular installation. If we are successful in
establishing favorable relationships with long-term customers, we anticipate
that these trends will reverse themselves as sales volumes increase during the
term of the relationship with our long-term customers and we are able to
standardize production and take advantage of economies of scale. As well, we
recorded a provision in the amount of $74,000 for obsolete inventory as newer
parts are required for our new technology RF amplifiers. We anticipate that we
will increase our gross margin during the second half of 2002 with increased
sales and reduced overhead as a result of our new sales and manufacturing
strategies.
Research and development expenses in the second quarter of 2002 increased
by 168%, or $365,831, to $584,135 from $218,304 in the second quarter of 2001.
This increase was primarily due to increased R&D activities and related
expenditures as a result of the larger number of engineering personnel on staff
and the increased development of additional radio frequency amplifier products
during the second quarter of 2002 versus the same period of 2001. During the
second quarter of 2002 we had an average staff number of over 20 engineers who
were working on over 30 projects versus approximately 10 engineers who were
working on under 5 projects for the same period in 2001. Stock compensation
expenses from the variable plan stock options was $8,905 in the second quarter
of 2002 and $58,621 for the same period in 2001.
Sales and marketing expenses in the second quarter of 2002 increased by
27%, or $37,876, to $177,863 from $139,987 in the second quarter of 2001. The
increase was primarily a net effect of decreased advertising, promotional
activities, tradeshow and travel expenses to visit new customers and
distributors, which was required in the second quarter of 2002 offset by
increased expenses from samples supplied to potential new customers. Providing
customers with trial samples in an industry norm that is required in order to
secure new long-term customer supply contracts. Over the second half of 2002, we
anticipate plan to increase our marketing and sales resources due to the
geographic diversification of our new customer base and with the goal of
securing additional short and long-term supply agreements. Sales and marketing
expenses include stock-based compensation recovery of $397 in the second quarter
of 2002 versus an expense of $36,870 for the same period in 2001.
15
Exchange loss (gain) in the second quarter of 2002 increased by 166%, or
$33,695 to $13,375 from $(20,320) the second quarter of 2001 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. During the quarter the Canadian dollar generally
strengthened against the U.S. dollar.
General and administrative expenses in the second quarter of 2002 decreased
by 41%, or $269,965, to $391,875 from $661,840 in the second quarter of 2001.
The reduction was a result of better control of overhead expenses, reduced stock
compensation expense and less public company filings and associated expenses
than in the same period as last year. General and administrative expenses
include stock-based compensation expenses of $30,002 in the second quarter of
2002 versus $218,678 for the same period in 2001.
Other Expenses (Income)
Interest income in the second quarter of 2002 decreased by 79%, or $4,780,
to $1,289 from $6,069 in the second quarter of 2001. This decrease results
primarily from a lower balance on deposited funds on deposit in the quarter.
Other income in the second quarter of 2002 decreased by 68%, or $418, to
$198 from $616 in the second quarter of 2001.
Six months Ended June 30, 2002 and June 30, 2001
Sales
Net sales of radio frequency amplifiers in the first half of 2002 decreased
by 11%, or $207,256, to $1,756,250 from $1,963,506 in the first half of 2001.
This decrease was due to the reduced sales in the second quarter of 2002 as a
result of the longer sales cycle required from the newly initiated sales
strategy which focuses on achieving sales from long-term customer supply
agreements. Additional factors contributing to the lower sales for the first six
months of 2002 was the general world-wide softening and changing of the market
conditions in the wireless sectors during the second quarter of 2002 and the
delayed awarding of wireless infrastructure contracts by the major Chinese
telecom companies to which we had made bids to the third quarter of 2002 from
the originally planned second quarter of 2002 roll-out. We anticipate that
revenues will increase in the second half of 2002 as we near the end of our
initial refocused sales cycle.
Operating Expenses
Cost of goods sold in the first half of 2002 increased by 22%, or $303,676,
to $1,686,478 from $1,382,802 in the first half of 2001. The increase was
primarily due to increased wages and benefits, sub-contract labor and testing
equipment required for the large amount of samples that were produced and
shipped to potential long-term supply customers during the first six months of
2002 and a second quarter of 2002 one time provision for obsolete inventory that
can no longer be used as newer component parts are now required for our new
technology RF amplifiers. We have subsequently refinanced and reduced the amount
of some of our test equipment, created more efficiency in our staffing
requirements and established a relationship with an outsource manufacturing
company. We expect to start outsourcing our larger orders during the third
quarter of 2002. This will allow us to take advantage of better purchasing
power, reduce our inventory levels and ensure that a consistent quality product
is delivered on time. We anticipate that our cost of goods sold, as a percentage
of sales, will be reduced during the second half of 2002 as a result of
increased sales and outsourced manufacturing. Costs of goods includes
stock-based compensation recovery of $19,221 in the first half of 2002 versus an
expense of $350 for the same period in 2001.
16
The gross margin of $69,772 or 4% of net sales for the first half of 2002
represented decrease from a gross margin of 30% of net sales for the first half
of 2001 due the initiation during the second quarter of 2002 of our refocused
sales strategy which transitioned from a focus on short-term relationships
resulting in immediate sales, but no commitment for additional purchases, to a
focus on building long-term relationships with customers who would commit to
purchase a specified percentage of their amplifier requirement from us over a
term of three or more years. The associated long sales cycle to potential
long-term supply customers results in costs of goods sold exceeding revenue
generated by sales due to low initial volume of sales as the long-term customer
begins to deploy their applications using our products and the higher production
cost initially associated with designing a custom solution for each long-term
customer's installation needs. If we are successful in establishing favorable
relationships with long-term customers, we anticipate that these trends will
reverse themselves over the course of the supply relationships as sales volumes
increase and we are able to standardize production and realize economies of
scale in production as a result of the standardization and increased sales. As
well, we recorded a provision in the amount of $74,000 for obsolete inventory as
newer parts are required for our new technology RF amplifiers. We anticipate
that we will increase our gross margin during the second half of 2002 with
increased sales and reduced overhead as a result increased volumes and lower per
unit costs associated with more standardized production of our amplifiers and
increased volumes of amplifiers we hope to sell.
Research and development expenses in the first half of 2002 increased by
174%, or $543,745, to $856,628 from $312,883 in the first half of 2001. This
increase was primarily due to increased R&D activities and related expenditures
as a result of the larger number of engineering personnel on staff and the
increased projects for development of additional RF amplifier products during
the first six months of 2002 versus the first six months of 2001. Research and
development expenses include stock-based compensation recovery of $56,433 in the
first half of 2002 versus an expense of $33,985 for the same period in 2001.
Sales and marketing expenses in the first half of 2002 increased by 20%, or
$35,977, to $216,649 from $180,672 in the first half of 2001. The increase was a
net effect of decreased advertising, promotional activities, tradeshow and
travel expenses to visit new customers and distributors which was required in
the first six months of 2002 offset by increased expenses from samples supplied
to potential new customers. Providing customers with trial samples in an
industry norm that is required in order to secure new long-term customer supply
contracts. Over the second half of 2002, we anticipate plan to increase our
marketing and sales resources due to the geographic diversification of our new
customer base and with the goal of securing additional short and long-term
supply agreements. Sales and marketing expenses include stock-based compensation
recovery of $61,123 in the first half of 2002 versus an expense of $25,897 for
the same period in 2001.
Exchange loss in the first half of 2002 increased by 129%, or $97,445 to
$22,127 from an exchange gain of $75,318 in the first half of 2001 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 half of 2002 decreased by
22%, or $184,345, to $651,005 from $835,350 in the first half of 2001. The
reduction was a result of better control of overhead expenses, reduced stock
compensation expense and less public company filings and associated expenses
than in the same period as last year. General and administrative expenses
include stock-based compensation recovery of $84,737 in the first half of 2002
versus an expense of $165,183 for the same period in 2001.
17
Other Income (Expenses)
Interest income in the first half of 2002 decreased by 92%, or $31,968, to
$2,671 from $34,639 in the first half of 2001. This decrease results primarily
from a lower balance on deposited funds on deposit during the period.
Other income in the first half of 2002 increased by 708%, or $65,649, to
$74,927 from $9,278 in the first half of 2001. This increase results primarily
from a $74,451 settlement of a government debt.
Liquidity and Capital Resources
Since our inception, we have been dependent on investment capital as our
primary source of liquidity. Prior to December 31, 2000, sales of the 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
June 30, 2002 of $14,415,321. During the 6 months ended June 30, 2002, we
focused entirely on the wireless product segment, primarily our amplifier
products, and incurred a net loss, after stock-based compensation expense, of
$1,585,032 (2001 - loss of $505,164).
During the first six months of 2002, our cash position decreased
significantly. The primary use of cash was for operations which also included
non-cash charges in depreciation expense, stock-based compensation recovery,
write down of research and development and outdated inventory, write off of non-
recoverable samples inventory and a gain on settlement of debt. Other
significant non-cash working capital changes included a decrease in accounts
receivable and a significant increase in accounts payable and accrued
liabilities.
Our investing activities during the first six months of 2002 were
attributable mainly to purchases of testing and tuning equipment and
expenditures in related to securing intellectual property.
Financing activities during the first six months included replacing the
previous HSBC Bank Canada operating line in February 2002 with a $82,500 (Cdn
$125,000) operating line from Canadian Imperial Bank of Commerce, at an interest
rate of prime, and secured by a $82,500 (Cdn$125,000) guaranteed investment
certificate and a general security agreement over all our assets. In March 2002,
we secured a $750,000 account receivable credit facility with Canadian Imperial
Bank of Commerce at an interest rate of Canadian Imperial Bank of Commerce's
prime rate plus 1% and an administrative fee of 1% of invoice value. As well, on
May 14, 2002, we completed an equity financing through a private offering of
2,317,857 units at $0.28 per unit, thereby raising equity capital for gross
proceeds of $649,000. Each unit consisted of one share of common stock and one
warrant exercisable to acquire one additional common share at $0.35 per share
until May 14, 2003. On July 2, 2002 certain stockholders of our Company
exercised share purchase warrants issued pursuant to the December 24, 2001
private placement. A total of 899,999 warrants were exercised at $ 0.30 per
share for total gross proceeds of $270,000. In the short term, we plan to raise
additional equity capital for working capital and expansion through the exercise
of existing warrants, an offering or a combination both.
Other than operating loan commitments and a commitment under existing
leases for an aggregate of $442,000 through 2004, we have no material
commitments, including capital commitments, outstanding at June 30, 2002.
18
Our capital requirements are difficult to plan in light of our current
strategy to expand our customer base and to develop new products and
technologies. Since our inception, we have been dependent on investment capital
as our primary source of liquidity. Our operations to date have been primarily
financed by sales of equity securities. As of June 30, 2002, we had working
capital deficiency of $286,159. Our operations presently are generating negative
cash flow, and we do not expect positive cash flow from operations in the near
term. During early July, we received gross proceeds of $270,000 from the
exercise of $0.30 warrants issued in December 2001 by certain stockholders
including officers and directors of the Company. We cannot assure you that
additional outstanding warrants will be exercised. We need to secure additional
working capital in the short-term in order to sustain our operations and execute
our business plan.
We anticipate that we will require a greater amount of additional working
capital for inventory, components and work in process or to expand our
manufacturing capacity if we enter into contracts for large quantities of our
amplifiers. We are incurring expenses in anticipation of future sales that may
not materialize. If future sales fall significantly below our expectations or if
we incur unanticipated costs or expenses our financing needs could be increased.
Any inability to obtain sufficient capital to sustain our existing operations,
to meet commitments or to fund our obligations under our existing sales orders
may require us to delay delivery of products, to default on one or more
agreements or to significantly reduce or eliminate sales and marketing, research
and development or administrative functions. The occurrence of any of these, or
other adverse affects of inability to raise adequate capital may have a material
adverse effect on our business, financial condition and results of operations.
Inflation
We do not believe that inflation has had a significant impact on our
consolidated results of operations or financial condition. However, we have
recently experienced some price increases for certain components that are used
in the wireless industry.
19
PART II - OTHER INFORMATION
Item 1. 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. Examinations for
Discovery have neither been conducted nor 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 a 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.
We have filed a lawsuit against Cobratech Industries Inc. in the Supreme
Court of British Columbia, Canada to recover certain funds 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 $85,600, including principle and accrued, but unpaid interest,
under the note. We have reached a tentative settlement arrangement with
Cobratech whereby Cobratech would satisfy the obligation by converting the debt
into shares of its parent's, CTI Diversified Holdings Inc., shares at a
conversion price determined by the average of the bid and ask price of CTI
Diversified Holdings Inc. shares as quoted on the OTC-BB on the day immediately
before conversion. There can be no assurances that the settlement will be
finalized, or that we will realize any cash value from any shares of CTI
Diversified Holdings Inc. we receive pursuant to the settlement.
Item 2. Changes in Securities
On May 14, 2002, we completed an equity financing through a private
offering of 2,317,857 units at $0.28 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 $0.35 per share until May
14, 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.
On July 2, 2002 certain stockholders of our Company exercised share
purchase warrants issued pursuant to the December 24, 2001 private placement. A
total of 899,999 warrants were exercised at $0.30 per share for total gross
proceeds of $270,000.
On July 31, 2002, the exercise price of 6,702,338 un-exercised warrants was
reduced to Cdn$0.35 on the condition that warrant holders exercise their
warrants within a 30 day period, otherwise the original warrant terms would
prevail. As well, if the closing price of the Company's shares is Cdn$0.437 or
greater for a period of 10 consecutive trading days, then the warrant holders
must exercise their warrants within 30 days otherwise the warrants will expire
of the 31st day. See Note 11 of the accompanying financial statements.
20
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)
99.1 Risk Factors
99.2 Officer's Certification
99.3 Officer's Certification
(b) Reports on form 8-K
We did not file any reports on Form 8-K during the quarter ended June 30,
2002.
21
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: August 14, 2002
22
EXHIBIT INDEX
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)
99.1 Risk Factors
99.2 Officer's Certification
99.3 Officer's Certification
23