<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 March 31, 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
SONIC SYSTEMS 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)
777 108th Avenue NE, Suite 1700, Bellevue, Washington 98004
(Address of principal executive offices)
1 800 337-6642
(Issuer's Telephone Number)
Number of shares of common stock outstanding at May 15, 2000: 24,788,725
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SONIC SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31,
2000
- - - ----------------------------------------------------------------
<S> <C>
ASSETS
Cash and cash equivalents 5,283,368
Accounts receivable 46,377
Government grant receivable 20,775
Inventory 541,253
Prepaid expenses 15,349
Related party advances 10,107
- - - ----------------------------------------------------------------
Total current assets 5,917,229
Property and equipment 49,810
Patents 480,855
- - - ----------------------------------------------------------------
6,447,894
================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities 725,805
Loans payable 415,005
Product warranty 25,887
- - - ----------------------------------------------------------------
Total current liabilities 1,166,697
Product warranty 49,616
- - - ----------------------------------------------------------------
Total liabilities 1,216,313
Common stock 20,654
Additional paid in capital 5,707,497
Shares to be issued 5,612,500
Other accumulated comprehensive income (24,746)
Accumulated deficit (6,084,324)
- - - ----------------------------------------------------------------
Total stockholders' equity 5,231,581
- - - ----------------------------------------------------------------
6,447,894
================================================================
</TABLE>
See notes to financial statements
<PAGE>
SONIC SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
2000 1999
- - - -----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 54,678 17,948
Cost of goods sold (74,232) (65,183)
- - - -----------------------------------------------------------------------------------------
Gross profit (19,554) (47,235)
- - - -----------------------------------------------------------------------------------------
Expenses:
Research and development (190,804) (108,101)
Government grant 0 5,972
Marketing (203,657) (112,529)
Interest expense (7,452) (4,969)
General and administrative (246,725) (259,152)
----------------------------------------------
(648,638) (478,779)
- - - -----------------------------------------------------------------------------------------
Operating loss for the quarter (668,192) (526,014)
Other income 4,289 6,667
Exchange gain (loss) (6,778) 13,417
- - - -----------------------------------------------------------------------------------------
Net loss for the quarter (670,681) (505,930)
Comprehensive loss
Net loss for the quarter (670,681) (505,930)
Currency translation adjustment 10,846 (10,828)
- - - -----------------------------------------------------------------------------------------
Comprehensive loss (659,835) (516,758)
=========================================================================================
=========================================================================================
Basic and diluted loss per
common share (0.04) (0.04)
=========================================================================================
</TABLE>
See notes to financial statements
<PAGE>
SONIC SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period (670,681) (505,930)
Adjustments to reconcile loss to net cash
used in operating activities
Amortization of patents 12,202 13,346
Depreciation of property and equipment 2,780 3,811
Stock based compensation 95,400 0
Changes in non-cash working capital relating to operations
Accounts receivable and government grant receivable (15,168) 99,603
Investment tax credit receivable 123,245 94,862
Inventory (11,725) (412,244)
Prepaid expenses (4,346) (9,556)
Accounts payable and accrued liabilities 270,128 52,441
Product warranty 6,217 (17,992)
- - - ------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (191,948) (681,659)
- - - ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (2,925) (4,840)
Increase (decrease) in patents 350 (16,610)
Related party advances (83) (4,970)
- - - ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,658) (26,420)
- - - ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank overdraft (18,220) 22,961
Repayment of loan payable (362,192) 0
Proceeds from loan payable 499,533 464,081
Proceeds from issued and to be issued common shares 5,730,468 0
Share issue costs (415,431) (996)
- - - ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,434,158 486,046
- - - ------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes
on cash and cash equivalents 10,846 (10,828)
- - - ------------------------------------------------------------------------------------------
NET CHANGE IN CASH DURING QUARTER 5,250,398 (232,861)
Cash at beginning of quarter 32,970 256,524
- - - ------------------------------------------------------------------------------------------
CASH AT END OF QUARTER 5,283,368 23,663
- - - ------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<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 period ending
March 31, 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 Sonic Systems Corporation's annual report on
Form 10-KSB for the year ended December 31, 1999.
2. Cash equivalents
The company considers 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.
3. Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31
2000
$
--------------------------------------------------------------------------------
<S> <C>
Raw materials 206,655
Work in process 724
Finished goods 333,874
--------------------------------------------------------------------------------
541,253
================================================================================
</TABLE>
4. Accounts payable and accrued liabilities
<TABLE>
<CAPTION>
MARCH 31,
2000
$
--------------------------------------------------------------------------------
<S> <C>
Trade accounts payable 241,837
Employee compensation payable 67,463
Accrued liabilities 28,035
Accrued fees 415,470
--------------------------------------------------------------------------------
725,805
================================================================================
</TABLE>
5. Earnings Per Share Data
The following table sets forth the computation of basic and diluted loss
per share:
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31,
2000 1999
$ $
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR
Net loss for the quarter (670,681) (505,930)
DENOMINATOR
Weighted average number of common shares outstanding 20,616,582 19,589,368
Escrowed shares 1,740,440 2,500,000
Performance shares 0 5,000,000
Basic and diluted loss per common share (0.04) (0.04)
===================================================================================================================
</TABLE>
For the quarter ended March 31, 2000 all of the Corporation's common shares
issuable upon the exercise of stock options were excluded from the
determination of diluted loss per share as their effect would be
anti-dilutive.
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
common shares have been reserved for issuance.
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, December 31, 1999 2,615,500 2,384,500 1.01
Options granted (1,760,000) 1,760,000 2.01
Options expired 247,500 (247,500) (1.00)
- - - -------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 1,103,000 3,897,000 1.46
==================================================================================================================
</TABLE>
7. Subsequent events
On March 24, 2000, the Corporation undertook an offering of 4,000,000
units, each consisting of one share and one warrant exercisable at
$3.25, for a unit price of $1.50 each. By April 17, 2000 the
Corporation accepted subscriptions and cash advances of $5,775,000
for 3,850,000 units.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion of the financial condition and results of operations of
Sonic Systems Corporation (the "Company") should be read in conjunction with the
financial statements and notes appearing elsewhere in this Form 10-QSB, and in
the 10-KSB recently filed.
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 service and support for
those systems. The Company's traffic signal priority system has accounted for
all revenues earned in the fiscal year ended December 31, 1998 and 1999, and the
quarter ending March 31, 2000. Management expects that wireless communication
products will become a dominant proportion of revenue in future years.
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 acoustic and wireless products, and Unity Wireless
Integration, Inc. ("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 moved the
Seattle office to more economical space. The Company also refocused
engineering and development activities toward wireless communication products
for traffic control
<PAGE>
in response to indications of strong demand in that segment of the
transportation industry. Management believes that the successful
demonstrations of a traffic controller communications product, the
establishment of a Singapore office for UW Integration, and the formation of
strategic alliances for marketing and distribution with intelligent
transportation systems industry members in 1999 and early 2000, 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 has begun to
prepare for increased sales and product development activity by making
gradual additions to staff and consulting resources. Management believes that
these activities, as well as strategic acquisitions of related businesses,
will enable the Company to deliver its business plan.
RESULTS OF OPERATIONS
(All amounts are in US dollars unless otherwise stated)
QUARTERS ENDED MARCH 31, 2000 AND 1999
Sales increased by 205% to $54,678 from $17,948 in the first quarter of 1999.
This increase was due to a higher level of sales of the Company's SONEM 2000
traffic signal priority system in the first quarter of 2000, resulting from
increased orders through the Company's distribution network.
Cost of goods sold increased by 14% to $74,232 from $65,183 in the first
quarter of 1999. Increased transfers from inventory to cost of goods sold to
support the higher sales volume were offset by reductions in other production
costs, primarily staff costs, in the first quarter of 2000 compared to the
first quarter of 1999.
Research and development expenses increased by 77% to $190,804 from $108,101 in
the first quarter of 1999. In the first quarter of 2000, staff and consulting
costs increased as the Company continued to invest in the development of the
UniLinx-TM- wireless communications product, a project that was commenced after
the first quarter of 1999. Also, in the first quarter of 2000, the Company
started a project to improve the functionality of its 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. The Company plans to
continue this project into the second and third quarters of 2000.
Marketing expenses increased by 81% to 203,657 from $112,529 in the first
quarter of 1999. The primary source of the increase is the award of $1.00
options to marketing staff during the first quarter to consummate previous
commitments. In 2000, the Company hired a project manager for its UniLinx-TM-
wireless communications product and conducted market studies into broader
product applications. Increased travel costs were incurred as the Company
negotiated a technical support contract in Singapore.
General and administrative expenses were little changed, decreasing 5% to
$246,725 from $259,152 in the first quarter of 1999. A decrease in employment
expenses due to lower staff compared to the first quarter of
<PAGE>
1999 was offset by higher legal costs due to activities leading to the
registration of the Company under the Exchange Act of 1934 on Form 10-SB, and
the filing of its initial annual report on Form 10-KSB.
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 March
31, 2000 of $6,084,324.
In the first quarter of 2000, the Company's cash position increased by
$5,250,398 to $5,283,368 on March 31 from $32,970 on December 31, 1999. The
Company was successful in raising $5,775,000 in gross proceeds under an equity
financing received 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,
however management expects that the Company will need additional capital 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. In
the event that Sonic Systems cannot raise needed capital, it will have a
material adverse effect on the Company.
In the quarter ended March 31, 2000, the Company issued 65,000 shares of
common stock in partial settlement of debt. The 10-KSB filed by the Company
for 1999 filing inadvertently stated the month of issue as April, 2000, in
which the certificates were issued.
Net cash used in operating activities was comprised basically of a loss of
$670,681 during the period. $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, however with the
Company's status as a U.S. public entity this tax credit is no longer refundable
for similar work performed in 1999 and beyond. Trade accounts payable were
reduced by $146,946, and fees of $415,470 relating to the financing were accrued
during the quarter. Inventories increased by $11,725 as reductions due to sales
of the Company's traffic signal priority system product were offset by initial
production of UniLinx-TM- communication systems in preparation for second
quarter sales.
The Company's investing activities in the first quarter of 2000 was primarily
comprised of new computer equipment.
UW Systems has a loan payable with the Royal Bank of Canada, consisting of a
demand reducing loan under the Canadian Western Economic Diversification IT&T
Program, of $US 140,351 ($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 March 31, 2000 was $118,637.
<PAGE>
INFLATION
The Company does not believe that inflation has had a significant impact on its
consolidated results of operations or financial condition. However, the Company
has recently experienced some significant price increases for certain components
that are used in the wireless industry.
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 February, 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 the quarter ended March 31, 2000, the Company issued 65,000 shares of
common stock in partial settlement of debt. The 10-KSB filed by the Company
for 1999 inadvertently stated the month of issue as April, 2000, in which the
certificates were issued.
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 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 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
<PAGE>
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 March 31, 2000
(b) Reports on form 8-K
None
Signatures
In accordance with the requirements of the Exchange Act, the registrant causes
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: May 15, 2000
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- - - ------ -----------
27.1 Financial Data Schedule of three months ended March 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,283,368
<SECURITIES> 0
<RECEIVABLES> 46,377
<ALLOWANCES> 0
<INVENTORY> 541,253
<CURRENT-ASSETS> 5,917,229
<PP&E> 95,751
<DEPRECIATION> 45,941
<TOTAL-ASSETS> 6,447,894
<CURRENT-LIABILITIES> 1,166,697
<BONDS> 0
0
0
<COMMON> 20,654
<OTHER-SE> 11,295,251
<TOTAL-LIABILITY-AND-EQUITY> 6,447,894
<SALES> 54,678
<TOTAL-REVENUES> 54,678
<CGS> 74,232
<TOTAL-COSTS> 74,232
<OTHER-EXPENSES> 648,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,452
<INCOME-PRETAX> (670,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> (670,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (670,681)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
