<PAGE>
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, 2000
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 0-30620
UNITY WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1940650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 NE 4th Street, Suite 2300, Bellevue, Washington 98004
(Address of principal executive offices)
1 800 337-6642
(Issuer's Telephone Number)
Number of shares of common stock outstanding at August 1, 2000: 24,788,725
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30,
2000
----------------------------------------------------------------
<S> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents 4,866,360
Accounts receivable 80,331
Government grant receivable 29,870
Inventory 316,967
Prepaid expenses 39,283
Related party advances 10,082
----------------------------------------------------------------
Total current assets 5,342,893
Property and equipment 86,269
Patents 460,523
----------------------------------------------------------------
5,889,685
================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities 814,765
Loans payable 177,754
Income taxes payable 5,999
Product warranty 50,861
----------------------------------------------------------------
Total current liabilities 1,049,379
Product warranty 49,616
----------------------------------------------------------------
Total liabilities 1,098,995
Common stock 24,789
Additional paid in capital 11,892,787
Other accumulated
comprehensive income 14,222
Accumulated deficit (7,141,108)
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Total stockholders' equity 4,790,690
----------------------------------------------------------------
5,889,685
================================================================
</TABLE>
See notes to financial statements
2
<PAGE>
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Net sales 164,116 61,173 218,794 79,121
Cost of goods sold (423,549) (57,436) (497,782) (122,619)
-------------------------------------------------------------------------------------------------------------
Gross profit (259,433) 3,737 (278,988) (43,498)
-------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development (212,153) (144,550) (402,957) (252,651)
Government grant 0 11,435 0 17,407
Marketing (175,956) (132,097) (379,613) (244,626)
Interest expense (5,375) (5,258) (12,827) (10,227)
General and administration (414,577) (314,407) (661,303) (573,558)
------------------------------------------------------------------------
(808,061) (584,877) (1,456,700) (1,063,655)
-------------------------------------------------------------------------------------------------------------
Operating loss for the period (1,067,494) (581,140) (1,735,688) (1,107,153)
Other income 53,028 270 57,317 6,936
Exchange gain (loss) (36,301) 6,897 (43,079) 20,314
Provision for income taxes (6,017) 0 (6,017) 0
------------------------------------------------------------------------------------------------------------
Net loss for the period (1,056,784) (573,973) (1,727,467) (1,079,903)
Comprehensive loss
Net loss for the period (1,056,784) (573,973) (1,727,467) (1,079,903)
Currency translation
adjustment 38,968 10,433 49,815 (394)
------------------------------------------------------------------------------------------------------------
Comprehensive loss (1,017,816) (563,540) (1,677,652) (1,080,297)
============================================================================================================
Basic and diluted loss per common
share (0.05) (0.05) (0.08) (0.09)
============================================================================================================
3
</TABLE>
See notes to financial statements
<PAGE>
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
2000 1999
OPERATING ACTIVITIES ---------- ----------
<S> <C> <C>
Loss for the period (1,727,466) (1,079,903)
Adjustments to reconcile loss to net cash
Used in operating activities
Amortization of patents 26,183 6,066
Depreciation of property and equipment 5,802 7,655
Shares issued for services 0 13,000
Stock based compensation 95,400 0
Changes in non-cash working capital relating to operations
Accounts receivable and government grant receivable (58,218) 136,840
Investment tax credit receivable 123,245 94,156
Inventory 212,561 (478,821)
Prepaid expenses (28,280) (11,131)
Accounts payable and accrued liabilities 359,089 228,458
Income taxes payable 5,999 0
Product warranty 31,192 (20,209)
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NET CASH USED IN OPERATING ACTIVITIES (954,493) (1,103,889)
-------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (42,407) (6,627)
Increase (decrease) in patents 6,701 (21,640)
Related party advances (58) (11,167)
-------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (35,764) (39,434)
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FINANCING ACTIVITIES
Bank overdraft (18,220) 13,822
Repayment of loan payable (597,809) 0
Proceeds from loan payable 497,898 897,004
Proceeds from issued and to be issued common shares 6,307,394 0
Share issue costs (415,431) (997)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 5,773,832 909,829
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Effect of foreign exchange rate changes
on cash and cash equivalents 49,815 (394)
-------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH DURING PERIOD 4,833,390 (233,888)
Cash at beginning of period 32,970 256,524
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CASH AT END OF PERIOD 4,866,360 22,636
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
4
<PAGE>
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.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete 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 three-month and six-month
periods ending June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000.
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, 1999, and the quarterly report
on Form 10-QSB for the three months ended March 31, 2000, under Unity
Wireless Corporation's former name, Sonic Systems Corporation.
2. Accounting Policies
a. Cash Equivalents
The Company considers all highly liquid financial instruments
purchased with an original maturity of three months or less to be
cash equivalents. Cash equivalents comprise mainly term deposits.
The carrying value of these instruments approximates their market
value.
b. Singapore Contract Revenue Recognition
Services revenue from the Singapore contract is recorded on the
percentage-of-completion method.
3. Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30
2000
$
------------------------------------------------------------------------------
<S> <C>
Raw materials 145,165
Finished goods 171,802
------------------------------------------------------------------------------
316,967
------------------------------------------------------------------------------
</TABLE>
During the quarter ended June 30, 2000, the Company wrote down its inventories
by $245,564 primarily to account for the obsolescence or unrealizable value of
certain components of its Sonem inventory. This write-down has been included in
costs of goods sold.
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4. Accounts payable and accrued liabilities
<TABLE>
<CAPTION>
June 30
2000
$
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Trade accounts payable 221,910
Employee compensation payable 108,269
Accrued liabilities 23,075
Deferred revenue 461,511
------------------------------------------------------------------------------------------------------------------
814,765
------------------------------------------------------------------------------------------------------------------
</TABLE>
5. Earnings Per Share Data
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR
Net loss for the period ($) (1,056,784) (573,973) (1,727,467) (1,079,903)
DENOMINATOR
Weighted average number of common shares outstanding 24,061,692 19,590,082 22,339,137 19,589,727
Escrowed shares 1,562,418 2,500,000 1,651,429 2,500,000
Performance shares 0 5,000,000 0 5,000,000
Basic and diluted loss per common share ($) (0.05) (0.05) (0.08) (0.09)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the 3-month and 6-month periods ended June 30, 2000, all of the
Corporation's common shares issuable upon the exercise of stock options
were excluded from the determination of diluted loss per share as their
effect would be anti-dilutive.
6. Stock Option Plan
During the year ended December 31, 1998 the Corporation established a stock
option plan pursuant to which 3,000,000 common shares have been reserved
for issuance. This plan has been replaced and on December 6, 1999, the
Corporation adopted a new stock option plan pursuant to which 5,000,000
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common shares have been 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, 2000, this maximum number was 4,957,745.
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------------------------------------------------------------------------------
SHARES AVAILABLE NO. OF COMMON WEIGHTED AVERAGE
UNDER OPTION SHARES ISSUABLE EXERCISE PRICE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, March 31, 2000 1,103,000 3,897,000 1.46
Options granted (270,000) 270,000 2.47
Options expired 0 0 N/A
Change in number of authorized options (42,255)
-------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 790,745 4,167,000 1.52
------------------------------------------------------------------------------------------------------------------
</TABLE>
7. Segmented information
Commencing April 1, 2000, the Company had revenue from more than one operating
segment. The Company reports revenue and profit/loss before general and
administrative expenses to its Chief Executive Officer for the following
segments:
1. Wireless products - comprising the UniLinx communication product and
other radio frequency wireless products under development
2. Contract Services - comprising the agency marketing, systems
integration, and contract services and support of Unity Wireless
Integration Corporation.
3. Acoustic Products - comprising the Sonem traffic signal priority
system and research and development activities toward the Sonem
or other acoustic products
<TABLE>
<CAPTION>
Three months ended June 30, 2000
----------------------------------------------------------------------------------------------
Wireless Contract Acoustic
Products Services Products Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $27,379 $92,578 $44,659 ($500) $164,116
Profit/loss (256,251) 48,541 (421,721) (18,111)* (647,542)
Segment assets** 174,763 0 602,727 0 777,490
</TABLE>
-----------------
* Comprises primarily videos and brochures for Corporate marketing purposes.
Acoustic products profit/loss contains an inventory write-down of $245,564
(see Note 3.)
** Segment assets include inventory and patents as at June 30, 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion of the financial condition and results of operations of
Unity Wireless Corporation (the "Company") should be read in conjunction with
the financial statements and notes appearing
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elsewhere in this Form 10-QSB, and in the 10-QSB for Mar. 31, 2000 and
10-KSB for Dec. 31, 1999 recently filed under the Company's former name, Sonic
Systems Corporation.
OVERVIEW
The Company is in the business of developing and manufacturing specialized
communications and traffic control products that use the acoustic spectrum as
well as traditional wireless channels. The Company also markets products and
systems for the intelligent transportation systems industry on behalf of other
manufacturers on an agency basis, and provides contract services and support for
those systems. The Company's acoustic-based traffic signal priority system has
accounted for all revenues earned in the fiscal years ended December 31, 1998
and 1999, and the quarter ending March 31, 2000. During the quarter ending June
30, 2000, revenues were also received from wireless products (UniLinx) and
contract services. Management believes the Company's resources and efforts
should be devoted primarily to wireless products and contract services, and
will recommend to the board of directors that the Company explore sale
opportunities of its acoustic traffic preemption business.
The Company has two principal operating subsidiaries, Unity Wireless Systems
Corporation, a British Columbia company("UW Systems"), which develops, produces
and markets the Company's wireless and acoustic products, and Unity Wireless
Integration Corporation ("UW Integration"), which performs agency marketing,
systems integration, and contract service and support activities.
The Company (including UW Systems) has incurred net losses since it became
active in July, 1995. Losses resulted from low initial sales of the Company's
traffic signal priority system combined with startup manufacturing activity and
engineering and research and development costs relating to product improvement
and new technologies. In 1998 and early 1999, the Company prepared for growth
that was anticipated from increased sales volume through newly developed
distribution channels. During this period, expenses increased due to additional
management and marketing expenses, and costs associated with the setup of an
office in Seattle. In the first quarter of 1999 the Company also took advantage
of volume-pricing to build inventory in anticipation of these increased sales.
In the first and second quarters of 1999, the Company did not achieve its
desired sales volumes. In response, the Company deferred manufacturing of
additional product, reduced expenses through elimination of telemarketing
activities and restructuring of senior management positions, and relocated
the Seattle office to more economical space. The Company also focused
engineering and development activities on wireless communication products for
traffic control, in response to indications of strong demand in that segment
of the transportation industry. In addition, the Company increased its
marketing efforts in Asia, resulting in a contract, during the first quarter
of 2000, with Orbital Sciences Corporation, Transportation Management Systems
division ("Orbital") to supply technical support and project management
services for the installation and operation of Orbital's transit information
and management system in Singapore. This contract
8
<PAGE>
led to the establishment in April, 2000 of Unity Wireless Integration (S)
Pte. Ltd., a Singapore company which is wholly-owned by UW Integration.
Management believes that the successful demonstrations of the UniLinx wireless
communications product in late 1999 and the first half of 2000, resulting in
initial orders for this product in the second and third quarters of 2000, and
the establishment of a Singapore office to provide and market contract services
in Asia, will have a positive impact on future sales.
With the successful completion of additional financing in March and April, 2000
(see "Liquidity and Capital Resources"), the Company is preparing for increased
sales and product development activity by making gradual additions to staff and
consulting resources. Management expects that these activities, as well as
strategic acquisitions of businesses or technologies in the wireless
communication field, will enable the Company to deliver its business plan.
RESULTS OF OPERATIONS
(All amounts are in US dollars unless otherwise stated)
QUARTERS ENDED JUNE 30, 2000 AND 1999
Sales increased by 168% to $164,116 from $61,173 in the second quarter of
1999. This increase was due primarily to initial revenue of $92,578 from the
Singapore service contract. Initial revenue of $27,379 from wireless sales
offset a decrease in revenue from Sonem sales.
Cost of goods sold increased by 637% to $423,549 from $57,436 in the second
quarter of 1999. The major contributor to this increase was a write-down of
Sonem inventory by $245,564 (see Note 3). Cost of goods sold for initial
sales of UniLinx and Contract Services also contributed to the increase.
Research and development expenses increased by 47% to $212,153 from $144,550
in the second quarter of 1999. The major factor contributing to the increase
was a continuation of a project to improve the functionality of the Company's
traffic signal priority system in order to extend the application of the
system to traffic controllers with more diverse requirements, and to reduce
unit cost and improve reliability. In the second quarter of 2000, staff and
consulting costs increased as the Company continued to invest in the
development of the UniLinx wireless communications product.
Marketing expenses increased by 33% to $175,956 from $132,097 in the second
quarter of 1999. In 2000, the Company increased advertising and travel costs to
demonstrate its UniLinx product to potential customers and at trade shows. The
Company also hired additional consultants to explore business development
opportunities for wireless products.
General and administrative expenses increased 32% to $414,577 from $314,407 in
the second quarter of 1999. Legal costs were higher due to the costs of becoming
a reporting issuer, including the filing of a 10-KSB
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<PAGE>
and the initial 10-QSB, and the filing of a proxy statement in preparation for
the Company's annual shareholder's meeting. Consulting costs also increased
as the company hired a merger and acquisition specialist, and provided
additional shareholder communication resources, including an updated web
site. Rent and telephone costs were lower during the second quarter of 1999
due to decreased costs of the relocated Seattle office, and telemarketing
costs which were discontinued in June of 1999.
Other income of $53,028 in the second quarter of 2000 was comprised primarily
of interest income.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has been dependent on investment capital as its
primary source of liquidity. Sales of the Company's current and earlier versions
of its SONEM 2000 traffic signal priority product have provided insufficient
cash flow to sustain operations. The Company had an accumulated deficit at June
30, 2000 of $7,141,108.
In the first six months of 2000, the Company's cash position increased by
$4,833,390 to $4,866,360 on June 30, 2000 from $32,970 on December 31, 1999.
The Company was successful in raising $5,775,000 in gross proceeds received
through an equity financing in March and April, 2000, of which 5,612,500 was
received in the first quarter. Management projects that the Company has
sufficient cash resources to finance operations at least until the end of
fiscal year 2000. Management expects that the Company will need additional
capital, however, to maintain and expand operations in fiscal year 2001.
There is no assurance that sufficient additional financing will be available
to the Company, or that, if available, the financing will be on terms
acceptable to the Company. If additional funding is not obtained in a timely
manner, it may be necessary for the Company to curtail or suspend operations.
There is no assurance that new business developments or other unforeseen
events will not occur that will result in the need to raise additional funds
during or following fiscal year 2000. If Unity Wireless Corporation cannot
raise needed capital, it will have a material adverse effect on the Company.
Net cash used in operating activities was comprised basically of a loss of
$1,727,466 during the first six months of 2000. $123,245 in operational funding
was also obtained through receipt of the Canadian income tax credit for
scientific research and experimental development performed at UW Systems in
1998. With the Company's status as a U.S. public entity, however, this tax
credit is no longer refundable for similar work performed in 1999 and beyond.
Accounts payable increased by $359,089, primarily due to the addition of
$461,511 in deferred revenue resulting from a prepayment by Orbital on the UW
Integration Singapore contract. Inventories were reduced by $212,561 primarily
from the inventory write-down for Sonem components (see Note 3), offset by a
modest increase in UniLinx component inventory in preparation for expected
purchase orders.
The Company's investing activities in the period ending June 30, 2000 were
primarily comprised of capital purchases of new computers and test equipment.
UW Systems has a loan payable with the Royal Bank of Canada, consisting of a
demand reducing loan under the Canadian Western Economic
10
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Diversification IT&T Program, of $140,351 ($Cdn 204,000) at an interest rate
of Royal Bank prime plus 6%. The Company is making principal repayments at
the rate of $3,604 ($Cdn 5,239) per month. The loan balance at June 30, 2000
was $105,944. On July 31, 2000 the Bank reduced the interest rate on the loan
to Royal Bank prime plus 3% from Royal Bank prime plus 6%.
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 experienced some significant price increases for certain components that
are used in the wireless industry.
YEAR 2000 READINESS
To date, the Company has experienced no material impacts from conversion to the
year 2000, directly or indirectly. At this time, the Company does not anticipate
any material impacts in the future related to the "Year 2000 issue".
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, relationship with clients, 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 2. CHANGES IN SECURITIES
In April, 2000, the Company issued common shares to non-U.S. persons, residing
outside of the U.S., in partial settlement of debts owed by UW Systems to such
persons. The Company issued 65,000 shares in consideration for repayment of
$117,548 of debt. No underwriting discounts were given or commissions paid.
In April, 2000 the Company completed an equity financing through a private
offering under Regulation D and Regulation S of the Securities Act of 1933. The
Company accepted subscriptions for 3,850,000 units resulting in gross proceeds
of $5,775,000. Each unit consists of one share of common stock and one
non-transferable, callable warrant to purchase one share of common stock at an
exercise price of $3.25. The warrant is exercisable for up to 18 months from
closing, unless earlier
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<PAGE>
called by the Company. The Company may call the warrants for exercise at any
time after the average of the bid-ask prices or closing prices, as
applicable, for the Company's common stock has equaled or exceeded $5.00 for
at least 10 consecutive days. If determined by the Board of Directors of the
Company that it would be in the best interests of the shareholders of the
Company, and if any underwriter or underwriters of the Company's securities
determine, in their discretion, that it would be in the best interests of the
Company, the Company has agreed it will use its reasonable efforts to cause
the shares comprising the units to be included in a registration statement
under the Securities Act of 1933, at such time as such registration is
reasonably practicable for the Company to accomplish. The Company also agreed
it will use its reasonable efforts to maintain the effectiveness of any such
registration statement for at least one year after the Closing of this
offering. The Company issued 285,000 shares as commissions or fees to
qualified persons.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule for the three months ended
June 30, 2000
(b) Reports on form 8-K
None
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.
SONIC SYSTEMS CORPORATION
(Registrant)
/s/ BRYAN WILSON
--------------------------
Bryan Wilson, Secretary
(duly authorized Officer)
Date: August 14, 2000
12
