UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNITY WIRELESS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 4812 91-1940650
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State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization Classification Code Number) Identification No.)
7438 Fraser Park Drive, Burnaby, British Columbia, Canada V5J 5B9 (800) 337-6642
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(Address and telephone number of registrant's principal executive offices)
Ilan Kenig, President and CEO
7438 Fraser Park Drive, Burnaby, British Columbia, Canada V5J 5B9 (800) 337-6642
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(Name, address and telephone number of agent for service)
Copy of communications to:
Oscar D. Folger, Esq.
521 5th Avenue
New York, New York 10175
Telephone: (212) 697-6464
Approximate date of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
1
CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered(1) per share(2) price (US$)(2) registration fee(3)
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Common Stock, no par value 14,500,122 0.445 $6,452,554 $817.54
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(1) Pursuant to Rule 429, this is a combined registration statement that covers
3,689,886 shares being carried forward from Registration Statements Nos.
333-82922 and 333-99169 and 10,810,236 shares being registered for the first
time by this registration statement.
(2) Estimated pursuant to Rule 457(c) under the Securities Act solely for
purposes of calculating the Registration Fee. The fee is based upon the average
of the high and low prices for a share of common stock of the registrant, as
quoted through the over-the-counter bulletin board on April 22, 2004.
(3) A registration fee of $387.00 was previously paid in connection with the
registration of 5,147,551 shares on Registration Statement No. 333-82922 of
which 1,924,217 shares are being carried forward, corresponding to a
registration fee previously paid of $144.66. In addition, a registration fee of
$51.94 was previously paid in connection with the registration of 2,454,786
shares on Registration Statement No. 333-99169 of which 1,765,669 shares are
being carried forward, corresponding to a registration fee previously paid of
$37.36. A registration fee of $635.52 is being submitted in connection with this
registration statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
EXPLANATORY NOTE
Unity Wireless Corporation has previously filed Registration Statements Nos.
333-82922 and 333-99169 to register shares of its common stock, as well as
shares of its common stock underlying warrants held by certain selling
shareholders. Pursuant to Rule 429 of the Securities Act of 1933, as amended,
this Registration Statement also serves as a post-effective amendment to the
prior registration statements. This Registration Statement eliminates those
selling shareholders who have previously sold such shares pursuant to the
previous registration statements and also eliminates those selling shareholders
to whom the Company no longer has registration obligations. This Registration
Statement also registers an additional 10,810,236 shares of common stock or
shares of common stock underlying warrants which have not previously been
registered.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SHARES AND THE SELLING SHAREHOLDER IS
NOT SOLICITING AN OFFER TO BUY THESE SHARES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
2
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED, APRIL 22, 2004
UNITY WIRELESS CORPORATION
A DELAWARE CORPORATION
14,500,122 SHARES OF COMMON STOCK OF UNITY WIRELESS CORPORATION
_________________________________
The prospectus relates to the resale by certain selling stockholders of
Unity Wireless Corporation of up to 14,500,122 shares of our common stock
in connection with the resale of:
- up to 8,045,836 shares issued upon exercise of warrants;
- up to 1,176,666 shares issued on conversion of promissory notes;
- up to 160,577 shares issued in payment of accounts payable; and
- up to 5,117,043 shares issuable on the exercise of warrants
For a description of the plan of distribution of the shares, please see page 10
of this Prospectus.
Our common stock is traded on the National Association of Securities Dealers OTC
Bulletin Board under the symbol "UTYW". On April 15, 2004, the closing bid price
of our common stock was $0.515.
Our business is subject to many risks and an investment in our common stock will
also involve a high degree of risk. You should invest in our common stock only
if you can afford to lose your entire investment. You should carefully consider
the various Risk Factors described beginning on page 6 before investing in our
common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is April 22, 2004.
3
TABLE OF CONTENTS
PAGE NUMBER
PROSPECTUS SUMMARY INFORMATION 5
RISK FACTORS 6
USE OF PROCEEDS 8
SELLING SECURITY HOLDERS 8
PLAN OF DISTRIBUTION 10
LEGAL PROCEEDINGS 12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 15
DESCRIPTION OF SECURITIES 16
INTEREST OF NAMED EXPERTS AND COUNSEL 17
DISCLOSURE OF COMMISION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 17
DESCRIPTION OF BUSINESS 17
WHERE YOU CAN FIND MORE INFORMATION 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
DESCRIPTION OF PROPERTY 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 26
EXECUTIVE COMPENSATION 27
FINANCIAL STATEMENTS 30
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 55
INDEMNIFICATION OF DIRECTORS AND OFFICERS 56
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 56
RECENT SALES OF UNREGISTERED SECURITIES 56
EXHIBITS 58
UNDERTAKINGS 61
SIGNATURES 62
4
You should rely only on the information contained in this prospectus. We have
not, and the selling security holders have not, authorized anyone to provide you
with different information. If anyone provides you with different information,
you should not rely on it. We are not, and the selling security holders are not,
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information contained in this
prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date. As used in this prospectus, the
terms "we", "us", "our", and "Unity" mean Unity Wireless Corporation and its
subsidiary, unless otherwise indicated.
All dollar amounts refer to US dollars unless otherwise indicated.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto, appearing
elsewhere in this prospectus. Because it is a summary, it does not contain all
of the information you should consider before making an investment decision.
Our Business
Our company, Unity Wireless Corporation, is a designer, developer and
manufacturer of high power radio frequency amplifiers. Our principal executive
offices are located at 7438 Fraser Park Driver, Burnaby, British Columbia,
Canada, V5J 5B9. Our telephone number is (800) 337-6642. We maintain a website
at www.unitywireless.com. Information contained on our website does not form
part of this prospectus.
We have one wholly-owned subsidiary, Unity Wireless Systems Corporation, a
British Columbia corporation incorporated on December 31, 2000.
Number of Shares Outstanding
There were 76,137,916 shares of our common stock issued and outstanding as at
April 15, 2004.
Summary of Financial Data
The summarized financial data presented below is derived from and should be read
in conjunction with the audited consolidated financial statements for the year
ended December 31, 2003 and 2002, including the notes to those financial
statements which are included elsewhere in this prospectus, along with the
section entitled "Management's Discussion and Analysis" beginning on page 19 of
this prospectus.
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FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
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Revenue $2,375,128 $2,991,971
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Net Loss for the Period ($3,007,950) ($2,664,841)
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Loss Per Share - basic and diluted ($0.07) ($0.08)
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AS AT AS AT
DECEMBER 31, 2003 DECEMBER 31, 2002
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Working Capital (Deficiency) ($375,479) ($394,917)
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Total Assets $1,658,720 $2,185,902
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Total Number of Issued Common Stock 63,578,953 35,016,894
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Deficit ($18,503,080) ($15,495,130)
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Total Stockholders' Equity $525,735 $468,633
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5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form SB-2 contains forward-looking statements. For this purpose, any
statements contained in this Form SB-2 that are not statements of historical
fact may be deemed to be forward-looking statements. You can identify
forward-looking statements by those that are not historical in nature,
particularly those that use terminology such as "may," "will," "should,"
"expects," "anticipates," "contemplates," "estimates," "believes," "plans,"
"projected," "predicts," "potential," or "continue" or the negative of these
similar terms. In evaluating these forward-looking statements, you should
consider various factors, including those listed below under the heading "Risk
Factors". The Company's actual results may differ significantly from the results
projected in the forward-looking statements. The Company assumes no obligation
to update forward-looking statements.
RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this prospectus in evaluating our company and its
business before purchasing shares of our company's common stock. Our business,
operating results and financial condition could be seriously harmed due to any
of the following risks. The risks described below are not the only ones facing
our company. Additional risks not presently known to us may also impair our
business operations. You could lose all or part of your investment due to any of
these risks.
We have had negative cash flows from operations and if we are not able to obtain
further financing our business operations may fail.
To date we have had negative cash flows from operations and we have been
dependent on sales of our equity and convertible securities to meet our cash
requirements. As of December 31, 2003, we had a working capital deficiency of
$375,479. We do not expect positive cash flow from operations in the near term.
We may not be able to obtain additional financing.
Substantial doubt about our ability to continue as a going concern.
We expect to incur operating losses and negative cash flow until our products
gain market acceptance sufficient to generate a commercially viable and
sustainable level of sales. These circumstances raise substantial doubt about
our ability to continue as a going concern, as described in our independent
auditors' report on the December 31, 2003 consolidated financial statements,
which are included with this annual report. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
We depend on a limited number of customers and if we are unable to diversify our
customer base and we lose one or more of these customers, then our revenues will
decrease significantly.
Sales to five customers comprised 77% of our revenue in the year ended December
31, 2003 and sales to five customers comprised 80% in the year ended December
31, 2002. During fiscal 2003, two of the five customers accounted for more than
ten percent (10%) of our revenues.
We depend on experienced management and if we are unable to retain or hire such
management in the future, then our ability to produce innovative and competitive
products could be adversely affected.
We depend on the services of our senior management team. The loss of the
services of any one of these persons, or an inability to recruit and retain
additional qualified personnel, could have a material adverse effect on our
business. We have no plans at present to obtain key person life insurance for
any of our officers and directors. We are also dependent on highly qualified
technical and engineering personnel. If we are unable to retain or hire such
management and key technical employees, our ability to generate revenues could
be adversely affected, as would our continued business operations.
6
Substantially all of our assets and a majority of our directors and officers are
outside the United States, with the result that it may be difficult for
investors to enforce within the United States any judgments obtained against us
or any of our directors or officers.
Substantially all of our assets are located outside the United States and we do
not currently maintain a permanent place of business within the United States.
In addition, a majority of our directors and officers are nationals and/or
residents of countries other than the United States, and all or a substantial
portion of such persons' assets are located outside the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under U.S. federal securities laws against
them.
We operate in a highly competitive industry and our failure to compete
effectively may adversely affect our ability to generate revenue.
The wireless communications industry is characterized by rapidly evolving
technology and intense competition. We may be at a disadvantage to other
companies having larger technical staff, established market share and greater
financial and operational resources. Many of our competitors have achieved
greater brand recognition and technologies than we currently enjoy. We may not
be able to successfully compete.
We hold no patents on our technology and may not be able to protect our
proprietary technology.
Other than the provisional patent application that we recently filed in the
United States for our multi-carrier linear amplifier, we do not have any patents
on our technology or products. We rely on a combination of copyright, trade
secret, trademark and patent laws to protect our proprietary intellectual
property. Management believes that the patent application process in many
countries in which we intend to sell products would be time-consuming and
expensive and any patent protection might be out of date by the time the patent
were to be granted.
Unanticipated warranty costs could affect the ongoing demand for our products
and our ability to operate profitably.
Our products are relatively new to their respective markets and lack extensive
field operating experience. While we have tested our products for failure in
certain circumstances, there can be no assurance that our products will continue
to operate satisfactorily after sustained field use. If a substantial number of
products are returned and accepted for warranty replacement, the cost to us
could have a material adverse effect on our business, the continued or ongoing
demand for our products and our ability to operate profitably.
We have a significant amount of aged payables and if we are unable to pay such
amounts or if a creditor decides to take legal action against us, we may have to
scale down or cease the operation of our business.
As at December 31, 2003, we had accounts payable and accrued liabilities of
$957,221, of which approximately $788,000 represented payables to trade
creditors. To date, these creditors have been co-operating with us to accept a
delayed payment of these outstanding payables. If one or more of these creditors
is no longer willing to accept delayed payments and demands immediate payment of
any such amounts, then our cash position and our need for further financing may
become immediate. If we are unable to raise the funds to pay off such aged
payables, then our continued operations may be negatively affected, and we may
have to scale down or even cease the operation of our business.
7
Trading of our stock may be restricted by the SEC's penny stock regulations
which may limit a stockholder's ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny
stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
"accredited investors". These requirements may have the effect of reducing the
level of trading activity in the secondary market for the stock that is subject
to these penny stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities. We believe that the penny
stock rules discourage investor interest in and limit the marketability of our
common stock.
Please read this prospectus carefully. You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information provided by
the prospectus is accurate as of any date other than the date on the front of
this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our
common stock being offered for sale by the selling stockholders. We will,
however, receive proceeds upon exercise of the warrants and these proceeds will
be used for general working capital purposes. We will incur all costs associated
with this registration statement and prospectus.
SELLING SECURITY HOLDERS
The table sets forth certain information regarding the beneficial ownership of
shares of common stock by the selling stockholders as of April 15, 2004, and the
number of shares of common stock covered by this prospectus. All shares offered
hereby are being registered pursuant to registration agreements with the
Company.
The selling stockholders may offer and sell, from time to time, any or all of
the 14,764,338 shares of common stock to be registered. No estimate can be given
as to the amount or percentage of these shares of common stock that will be held
by the selling stockholders upon termination of the offering.
38,462 of the shares offered by Michael Mulshine, 72,115 of the shares offered
by Michael Cuniff, and all of the shares offered by Doron Nevo, who is a
director of the Company, were issued in payment of accounts payable.
Of the 1,075,664 shares being offered by Mueller & Company ("Mueller"), 500,000
were acquired by Mueller on exercise of warrants issued in 2001 for consulting
services ("consulting warrants"), 500,000 are issuable to Mueller on exercise of
replacement warrants issued on exercise of the consulting warrants, and the
75,664 share balance was issued to Mueller as a finder's fee in 2002. Mueller
was a registered broker-dealer until December 2002. Mueller has advised that it
acquired the securities listed opposite its name below in the ordinary course of
business for its own account, and, at the time of purchase of the securities,
had no agreements or understandings with any person, directly or indirectly, to
distribute the securities.
The balance of the shares being offered hereby were issued in private
placements by the Company or are on exercise of warrants issued in private
placements by the Company, or are issuable on exercise of such warrants.
8
SHARES
ISSUABLE
UPON EXERCISE NUMBER OF SHARES OWNED
SHARES OF WARRANTS BY SELLING STOCKHOLDER AFTER
SHARES BENEFICIALLY REFERRED TO IN OWNED BEFORE OFFERING AND PERCENT OF TOTAL
OWNED BEFORE THE TO IN PRECEDING THE OFFERING, ALL ISSUED AND OUTSTANDING(1)
OFFERING (EXCLUDING COLUMN THAT OF WHICH ARE -----------------------------
SELLING SHARES ISSUABLE ON ARE REGISTERED REGISTERED TOTAL SHARES # OF % OF
STOCKHOLDER EXERCISE OF WARRANTS HEREUNDER HEREUNDER REGISTERED SHARES CLASS
----------- -------------------- --------- --------- ---------- ------ -----
324168 AB Ltd. 114,172 57,086 -- 57,086 57,086 0.075%
Abraham Muller 22,714 17,857 -- 17,857 4,857 0.006%
Alan Gelfand 35,713 -- 35,713 35,713 35,713 0.047%
Albert Beta 100,000 -- 100,000 100,000 100,000 0.131%
Ben Rosenblum 91,269 91,269 -- 91,269 -- 0.000%
Beth Medrash Govoha of
Lakewood 1,276,666 1,276,666 1,666,666 2,943,332 -- 0.000%
Canaccord Capital
Corporation -- -- 20,550 20,550 -- 0.000%
Casey J. O'Byrne
Professional Corporation (2) 686,548 -- 666,667 666,667 686,548 0.902%
Chancellor Apartments LLC (3) 1,523,819 1,035,000 258,750 1,293,750 488,819 0.642%
Clayton Duxbury -- -- 57,086 57,086 -- 0.000%
David Zajac 107,142 53,571 -- 53,571 53,571 0.070%
Doron Nevo (4) 50,000 50,000 -- 50,000 -- 0.000%
Ezra Schnapp 285,714 185,714 -- 185,714 100,000 0.131%
Friendly Trend Fund Inc. 37,076 -- 57,086 57,086 37,086 0.049%
Jeffrey Rubin 1,274,811 528,433 528,433 1,056,866 746,378 0.980%
John Anderson 50,000 -- 21,429 21,429 50,000 0.066%
John Leslie 1,311,144 521,822 -- 521,822 789,322 1.037%
Jon Gahre 60,000 30,000 -- 30,000 30,000 0.039%
Ken Coward 308,672 57,086 -- 57,086 251,586 0.330%
Keren MYCB Elias Foundation Inc. 272,818 272,818 -- 272,818 -- 0.000%
Liz Biderman 17,143 17,143 -- 17,143 -- 0.000%
Mark Hammerstone 36,508 36,508 -- 36,508 -- 0.000%
Michael A. Mulshine 510,962 38,462 200,000 238,462 472,500 0.621%
Michael Cuniff 552,715 72,115 50,000 122,115 480,600 0.631%
Michael Hammerstone 80,158 80,158 -- 80,158 -- 0.000%
Mokhlis Y. Zaki 722,632 100,000 50,000 150,000 622,632 0.818%
Morten Borch 300,000 97,143 -- 97,143 202,857 0.266%
Moshe Rosner 835,987 528,434 132,109 660,543 307,553 0.404%
Mueller & Company, Inc. 500,000 500,000 575,664 1,075,664 -- 0.000%
Murray Weitman 82,207 74,603 -- 74,603 7,604 0.010%
Ole Nyflot 30,000 -- 30,000 30,000 30,000 0.039%
Pemo AS 145,000 10,000 30,000 40,000 135,000 0.177%
Pergola AS 170,000 -- 40,000 40,000 170,000 0.223%
Rachel Mendelovitz 183,333 183,333 -- 183,333 -- 0.000%
Robert Millham -- -- 35,713 35,713 -- 0.000%
Salvatore Amato 36,775 36,775 -- 36,775 -- 0.000%
Sara Heiman 2,294,498 1,585,300 396,325 1,981,625 709,198 0.931%
Shalom Torah Centers (5) 525,949 517,500 129,375 646,875 8,449 0.011%
Sid Tarrabain Professional
Corporation (6) 167,333 66,667 33,334 100,001 100,666 0.132%
Sondre Invest AS 400,000 80,000 -- 80,000 320,000 0.420%
Van Wyck Window Fashions
Inc. 208,382 208,382 -- 208,382 -- 0.000%
Wayne Gambell 2,500,000 933,234 -- 933,234 1,566,766 2.058%
Wimo Invest AS 130,000 40,000 -- 40,000 90,000 0.118%
Wolverton Securities Ltd. -- -- 2,143 2,143 -- 0.000%
--------------------------------------------------------------------------------
18,037,870 9,383,079 5,117,043 14,500,122 8,654,791
9
(1) Assumes all of the shares of common stock offered are sold. Based on
76,137,916 shares of common stock issued and outstanding on April 15, 2004.
(2) Casey J. O'Byrne Professional Corporation is wholly owned by Casey J.
O'Byrne. Mr. O'Byrne was a director of the Company from October 28, 2002 until
April 2, 2004.
(3) Chancellor Apartments LLC is owned by Barry Singer who exercises dispositive
and voting powers with respect to shares of common stock that Chancellor
Apartments LLC owns or would acquire on exercise of warrants.
(4) Doron Nevo has been a director of the Company since July 11, 2002.
(5) Shalom Torah Centers is owned by Yisroel Kellner who exercises dispositive
and voting powers with respect to shares of common stock that Shalom Torah
Centers owns or would acquire on exercise of warrants.
(6) Sid M. Tarrabain Professional Corporation is wholly owned by Sid M.
Tarrabain who exercises dispositive and voting powers with respect to shares of
common stock that Sid M. Tarrabain Professional Corporation owns or would
acquire on exercise of warrants.
We may require the selling security holders to suspend the sales of the
securities offered by this prospectus upon the occurrence of any event that
makes any statement in this prospectus or the related registration statement
untrue in any material respect or that requires the changing of statements in
these documents in order to make statements in those documents not misleading.
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell all or a portion of the
shares of common stock on any market upon which the common stock may be listed
or quoted (currently the National Association of Securities Dealers OTC Bulletin
Board), in privately negotiated transactions or otherwise. Such sales may be at
fixed prices prevailing at the time of sale, at prices related to the market
prices or at negotiated prices. The shares of common stock being offered for
resale by this prospectus may be sold by the selling stockholders by one or more
of the following methods, without limitation:
(a) block trades in which the broker or dealer so engaged will attempt to
sell the shares of common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
(b) purchases by broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of the
applicable exchange;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
(e) privately negotiated transactions;
(f) market sales (both long and short to the extent permitted under the
federal securities laws);
(g) at the market to or through market makers or into an existing market
for the shares;
(h) through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise); and
(i) a combination of any of the aforementioned methods of sale.
10
In the event of the transfer by any of the selling stockholders of its secured
convertible notes, share purchase warrants or shares of common stock to any
pledgee, donee or other transferee, we will amend this prospectus and the
registration statement of which this prospectus forms a part by the filing of a
post-effective amendment in order to have the pledgee, donee or other transferee
in place of the selling stockholder who has transferred his, her or its shares.
In effecting sales, brokers and dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from a selling stockholder or, if any of the
broker-dealers act as an agent for the purchaser of such shares, from a
purchaser in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
selling stockholder to sell a specified number of the shares of common stock at
a stipulated price per share. Such an agreement may also require the
broker-dealer to purchase as principal any unsold shares of common stock at the
price required to fulfil the broker-dealer commitment to the selling stockholder
if such broker-dealer is unable to sell the shares on behalf of the selling
stockholder. Broker-dealers who acquire shares of common stock as principal may
thereafter resell the shares of common stock from time to time in transactions
which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above. Such sales
by a broker-dealer could be at prices and on terms then prevailing at the time
of sale, at prices related to the then-current market price or in negotiated
transactions. In connection with such resales, the broker-dealer may pay to or
receive from the purchasers of the shares commissions as described above.
The selling stockholders and any broker-dealers or agents that participate with
the selling stockholders in the sale of the shares of common stock may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
these sales. In that event, any commissions received by the broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
From time to time, any of the selling stockholders may pledge shares of common
stock pursuant to the margin provisions of customer agreements with brokers.
Upon a default by a selling stockholder, their broker may offer and sell the
pledged shares of common stock from time to time. Upon a sale of the shares of
common stock, the selling stockholders intend to comply with the prospectus
delivery requirements under the Securities Act by delivering a prospectus to
each purchaser in the transaction. We intend to file any amendments or other
necessary documents in compliance with the Securities Act which may be required
in the event any of the selling stockholders defaults under any customer
agreement with brokers.
To the extent required under the Securities Act, a post effective amendment to
this registration statement will be filed disclosing the name of any
broker-dealers, the number of shares of common stock involved, the price at
which the common stock is to be sold, the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable, that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and other facts material to
the transaction.
We and the selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations under it, including, without
limitation, Rule 10b-5 and, insofar as a selling stockholder is a distribution
participant and we, under certain circumstances, may be a distribution
participant, under Regulation M. All of the foregoing may affect the
marketability of the common stock.
All expenses of the registration statement including, but not limited to, legal,
accounting, printing and mailing fees are and will be borne by us. Any
commissions, discounts or other fees payable to brokers or dealers in connection
with any sale of the shares of common stock will be borne by the selling
stockholders, the purchasers participating in such transaction, or both.
Any shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act, as amended, may be sold under
Rule 144 rather than pursuant to this prospectus.
11
LEGAL PROCEEDINGS
Other than as set forth below, we know of no material, active or pending legal
proceedings against our company, nor are we involved as a plaintiff in any
material proceeding or pending litigation. There are no proceedings in which any
of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our
interest.
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 lawsuit was commenced on January 5, 2001. Integrated
Global alleges it has options to purchase 500,000 shares, with no expiry date,
at an alleged exercise price of $1.00 per share, plus unspecified damages. We
dispute the allegations and are defending the claim. No trial date has been set.
No Examinations for Discovery have been conducted or have been scheduled. The
matter is at a very preliminary stage. It is our view that the claim has little,
if any, merit and we do not expect the proceeding to have any material adverse
effect on us. It is our position that these options have expired and we have not
included such options in our outstanding options at December 31, 2003.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and executive officers , their ages, positions held and duration
each person has held that position, are as follows:
=================================================================================================================
NAME POSITION HELD WITH THE AGE DATE FIRST ELECTED
COMPANY OR APPOINTED
-----------------------------------------------------------------------------------------------------------------
Ilan Kenig President, Chief Executive Officer and 43 President on April 1,
Director 2002 and Chief Executive
Officer on October 31,
2002
-----------------------------------------------------------------------------------------------------------------
Myer Bentob Director and Executive Chairman of the 72 August 12, 2003
Board of Directors
-----------------------------------------------------------------------------------------------------------------
Dallas Pretty Chief Financial Officer 34 April 1, 2004
-----------------------------------------------------------------------------------------------------------------
Andrew James Chamberlain Director and Corporate Secretary 42 October 28, 2002
-----------------------------------------------------------------------------------------------------------------
Ken Maddison Director 63 October 29, 1998
-----------------------------------------------------------------------------------------------------------------
Robert W. Singer Director 56 June 22, 2001
-----------------------------------------------------------------------------------------------------------------
Doron Nevo Director 48 July 11, 2002
=================================================================================================================
Business Experience
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed.
Ilan Kenig - President, Chief Executive Officer and Director
Mr. Kenig has over 18 years of legal, venture capital and investment banking
experience with specific emphasis in the technology and telecommunications
arena. Mr. Kenig joined the company as Vice President of Business Development in
December 2001 before assuming the position of President in April 2002. Prior to
pursuing international finance activities in New York, Mr. Kenig was a founder
of a law firm in Tel-Aviv representing mostly technology and telecommunications
interests. Mr. Kenig holds a law degree from Bar-Ilan University.
12
Myer Bentob - Director and Executive Chairman of the Board of Directors
Mr. Bentob joined Unity Wireless in August 2003 . He founded Mitec Telecom in
1973, and served as its President and CEO from 1974 until 2002. Prior to
founding Mitec, Mr. Bentob served as the Director of Engineering and Marketing
at Andrew's Canadian Operations, a system engineer at Canadian Marconi, and a
research engineer at Marconi Research Labs UK.
Dallas Pretty - Chief Financial Officer
Mr. Pretty is a Chartered Accountant with over 10 years of experience in both
public and private companies with specific emphasis in the technology arena. Mr.
Pretty joined the Company as an advisor and consultant in April 2003 before
assuming the position of Chief Financial Officer in April 2004. Prior to joining
Unity Wireless, Mr. Pretty worked in KPMG's Assurance Group from 1994 to 2000
and since then has worked in senior management roles for a number of companies.
Mr. Pretty holds a BBA from Simon Fraser University.
Ken Maddison - Director
Mr. Maddison, a Chartered Accountant since 1966 and elected a Fellow of the
Institute of Chartered Accountants of British Columbia in 1975, retired in
August 1997 after a lengthy career as a partner with the accounting firm KPMG
between 1977 and 1997. Since September 1997, Mr. Maddison has been self-employed
as a consultant providing various financial advisory services. Mr. Maddison
currently serves as CFO and director of three public companies: International
Wayside Gold Mines Ltd., Island Mountain Gold Mines Ltd., and Golden Cariboo
Resources Ltd. He is also a director and audit committee chairman for Northern
Continental Resources Inc, Northern Hemisphere Development Inc, Datec Group
Ltd.(formerly Brocker Technology Group Ltd), and Helijet International.
Robert W. Singer - Director
Senator Singer is a New Jersey state senator and serves within the Senate
leadership circle as Assistant Majority Leader. Senator Singer is also
Vice-Chairman of the Senate Commerce Committee and a member of the Senate Health
Committee. In his former duties as an elected representative in the Upper House,
Senator Singer was Chairman of the Senate Senior Citizens, Veterans Affairs and
Agriculture Committee and was Vice-Chairman of the Senate Environment Committee,
and had been appointed to chair the Joint Legislative Biotechnology Task Force
and the Software Task Committee. Senator Singer is presently Chairman of the
Senate Task Force on Science and Technology, which was established in 2001. On a
national level, Senator Singer was also appointed as a member of the Health
Committee of the Assembly on Federal Issues of the National Conference of State
Legislatures. Members of the Assembly on Federal Issues meet with federal
officials and play a key role in developing recommendations on a wide range of
national issues that affect state-federal relations. Senator Singer currently
serves on the boards of Datec Group Ltd.(formerly Brocker Technology Group Ltd),
a company whose shares of common stock are registered with the Securities and
Exchange Commission, and Healthchoice Incorporated.
Andrew James Chamberlain - Director and Corporate Secretary
Mr. Chamberlain is an attorney practicing law in Edmonton, Alberta, and a
partner with the law firm of Chamberlain Hutchison. Mr. Chamberlain is a
sessional instructor in corporate securities at the University of Alberta law
school. Mr. Chamberlain is a director and corporate secretary of Datec Group
Ltd.(formerly Brocker Technology Group Ltd.), a company whose shares of common
stock are registered with the Securities and Exchange Commission, and a director
of Loma Oil & Gas Ltd., a company listed on the TSX Venture Exchange.
13
Doron Nevo - Director
Currently, Mr. Nevo is President and CEO of KiloLambda Technologies, Ltd. an
optical subsystems company he founded in early 2001. From July 1999 to January
2001, Mr. Nevo was the President and CEO of D.FourD., Ltd., a venture capital
investment company. From March 1996 to June 1999, Mr. Nevo was President and CEO
of NKO, Inc. a company he founded that designed and developed a carrier grade IP
Telephony system platform and established its own IP network. From February 1992
to February 1996, Mr. Nevo was also President and CEO of Clalcom Ltd., an
international telecommunications service provider in Israel which he founded in
1992. Prior to Clalcom, he held various positions with Sprint International Inc.
He also serves on the board of a number of companies including Audiocodes, Ltd.
(a telecommunication technology company), a company whose shares of common stock
are registered with the Securities and Exchange Commission, Elcom Technologies
(a manufacturer of Satcom and Digital Radio synthesizers), Notox, Ltd. (a
biotech company) and Cellaris, Ltd. (a new materials company). Mr. Nevo received
a B.Sc. in Electrical Engineering from the Technion and an M.Sc. in
Telecommunications Management from Brooklyn Polytechnic.
See "Certain Relationships and Related Transactions" for information on
transaction between the Company and Messrs. Bentob and Chamberlain, and with Mr.
Casey O'Byrne who was a director of the Company until April 2, 2004.
Family Relationships
There are no family relationships among our directors or officers.
The Company has a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. Serving
on the Committee are Ken Maddison and Robert Singer, and there is one current
vacancy. The Board of Directors had determined that it has an audit committee
financial expert serving on the audit committee, Ken Maddison. Mr. Maddison is
an independent director as defined in Item 7(d)(3)(iv) of Schedule 14A.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 15, 2004, certain information with
respect to the beneficial ownership of our shares of common stock by each
shareholder known to us to be the beneficial owner of 5% of our shares of common
stock, and by each of our officers and directors. Each person has sole voting
and investment power with respect to the shares of common stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of common stock, except as otherwise indicated.
--------------------------------------------------------------------------------
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
--------------------------------------------------------------------------------
Ilan Kenig 1,597,750(2) 2.10%
1099 Marinaside Cresent
Suite 802
Vancouver, BC V6Z 2Z3
--------------------------------------------------------------------------------
Doron Nevo 96,667(3) Nil*
15 Yakov Hazan
Raanana, Israel 43563
--------------------------------------------------------------------------------
Ken Maddison 172,500(4) Nil*
2591 Lund Avenue
Coquitlam, BC V3K 6J8
--------------------------------------------------------------------------------
Myer Bentob 2,861,658(5) 3.89%
331 Beaconsfield Blvd
Quebec H9W 4A6
--------------------------------------------------------------------------------
Robert W. Singer 50,000 Nil*
2110 West County Line Road
Jackson, NJ 08527
--------------------------------------------------------------------------------
Andrew Chamberlain 37,500(6) Nil*
9222 - 183B Street
Edmonton, AB T5J 3Z7
--------------------------------------------------------------------------------
William Weidman 18,608,387(7) 24.44%
136 Shorewood Drive
Great Neck, NY 11021
--------------------------------------------------------------------------------
Directors and Executive Officers as a Group 4,916,075(8) 6.42%
--------------------------------------------------------------------------------
Nil* - less than 1%
(1) Based on 76,137,916 shares of common stock issued and outstanding as
of April 15, 2004. Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power
with respect to securities. Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed above, based on
information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws
where applicable.
(2) Includes options to acquire an aggregate of 1,202,083 shares of common
stock exercisable within sixty days. The shares owned by Ilan Kenig were
purchased by him in December, 2001.
(3) Includes options to acquire an aggregate of 46,667 shares of common
stock exercisable within sixty days.
15
(4) Includes options to acquire an aggregate of 122,500 shares of common
stock exercisable within sixty days.
(5) Includes options to acquire an aggregate of 187,500 shares of common
stock and warrants to purchase an aggregate of 924,720 shares of common
stock, exercisable within sixty days.
(6) Includes options to acquire an aggregate of 37,500 shares of common
stock exercisable within sixty days.
(7) Includes warrants to purchase an aggregate of 1,585,300 shares of
common stock, exercisable within sixty days.
(8) Includes options to acquire an aggregate of 1,596,250 shares of common
stock and warrants to purchase an aggregate of 924,720 shares of common
stock, exercisable within sixty days.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of common stock without par value
and up to 5,000,000 shares of preferred stock on such terms as the Board may
determine. As at April 15, 2004 we had 76,137,916 shares of common stock
outstanding and no preferred stock outstanding. All outstanding shares of our
common stock are duly authorized, validly issued, fully paid and non-assessable.
Upon liquidation, dissolution or winding up of the corporation, the holders of
common stock are entitled to share ratably in all net assets available for
distribution to stockholders after payment to creditors. The common stock is not
convertible or redeemable and has no preemptive, subscription or conversion
rights.
Each outstanding share of common stock is entitled to one vote on all matters
submitted to a vote of stockholders. There are no cumulative voting rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available at such times and in such amounts as
our Board of Directors may from time to time determine. Holders of common stock
will share equally on a per share basis in any dividend declared by the Board of
Directors. We have not paid any dividends on our common stock and do not
anticipate paying any cash dividends on such stock in the foreseeable future.
In the event of a merger or consolidation, all holders of common stock will be
entitled to receive the same per share consideration.
The preferred shares could, in certain instances, render more difficult or
discourage a merger, tender offer, or proxy contest and thus potentially have an
"anti-takeover" effect, especially if preferred shares were issued in response
to a potential takeover. In addition, issuances of authorized preferred shares
can be implemented, and have been implemented by some companies in recent years,
with voting or conversion privileges intended to make acquisition of the
corporation more difficult or more costly. Such an issuance could deter the
types of transactions which may be proposed or could discourage or limit the
stockholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were favored
by the majority of the stockholders, and could enhance the ability of officers
and directors to retain their positions.
16
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency basis
or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents, subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
Our consolidated financial statements as at December 31, 2003 and 2002 for each
of the years in the two year period ended December 31, 2003 filed with this
prospectus and registration statement, have been audited by KPMG LLP,
independent chartered accountants, as set forth in their report accompanying the
consolidated financial statements and have been included herein in reliance upon
such report, and upon the authority of said firm as experts in accounting and
auditing. The audit report covering the December 31, 2003 consolidated financial
statements contains an explanatory paragraph that states our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
Certain legal matters in connection with this offering and Registration
Statement are being passed upon by Oscar D. Folger, New York, New York.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our bylaws provide that directors and officers shall be indemnified by us to the
fullest extent authorized by the Delaware General Corporation Law, against all
expenses and liabilities reasonably incurred in connection with services for us
or on our behalf.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
DESCRIPTION OF BUSINESS
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
In this annual report, unless otherwise specified, all dollar amounts are
expressed in United States dollars. All references to "CDN$" refer to Canadian
dollars and all references to "shares of common stock" refer to the shares of
common stock in our capital stock.
17
Business Development During Last Three Years
Our company was incorporated in the State of Delaware on October 1, 1998. During
the period from December 1998 until June 2001 we were engaged in the traffic
control business. In November 2000 we entered the business of designing,
developing and manufacturing linear power amplifiers for the wireless network
infrastructure industry. During 2001, we focused on developing new products and
expanding our marketing, sales and global distribution network. In 2002, our
business strategy evolved and focused on securing long-term supply agreements
with strategic key customers. In 2003, we continued to focus on securing
long-term supply agreements with key customers and developing new RF power
amplifiers and technology. We completed the initial development of our
`efficiency enhanced' product and made samples available to a select group of
interested potential customers.
Our Current Business
Principal Products
We make high power radio frequency amplifiers. We have developed over 30 models
of our products which are used in cellular, personal communication services
(PCS), paging, wireless local loop (WLL) and third generation(3G) networks. Each
one of our high power amplifiers is custom made to satisfy each customer's
particular requirements. 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 of our amplifiers are used in signal repeaters that are used to extend
coverage in cellular telephone networks. Some of our products are also used in
base station equipment and some are multi-channel power amplifiers. We have
developed power amplifiers for use in digital television broadcasting in Korea
and for base station applications for both the mobile phone and wireless local
loop network. Wireless local loop networks are sometimes referred to as "the
last mile" solution because unlike cellular phone systems which are mobile
wireless networks, wireless local loop networks are designed to deliver voice
and high speed data (e.g., Internet) services to fixed locations such as homes
and small offices via wireless communication devices without the need for
special wiring.
Our family of amplifiers covers a range of average output power levels (from 2
watts to 80 watts) and a number of different operating frequency bands.
Substantially all of our assets and operations are located in British Columbia,
Canada.
Revenues from operations were approximately $2,375,000 in the year ended
December 31, 2003 and $2,992,000 in the year ended December 31, 2002. A summary
of sales by geographic region for the years ended December 31, 2003 and 2002 is
as follows:
2003 % OF TOTAL 2002 % OF TOTAL
PLACE SALES 2003 SALES SALES 2002 SALES
----- ----- ---------- ----- ----------
Israel $ 113,000 4.8% $ 34,000 1.1%
Korea $ 93,000 3.9% $1,340,000 44.8%
Sweden $ 164,000 6.9% $ 88,000 2.9%
United States $1,263,000 53.2% $ 774,000 25.9%
China $ 518,000 21.8% $ 756,000 25.3%
Canada $ 217,000 9.1% $nil --
Other $ 7,000 0.3% $nil --
Product Research and Development
We mainly work with our own proprietary technology and certain technology
developers to increase the performance and efficiency of our amplifiers. In
November 2002, we entered into a licensing agreement with Paragon
Communications, an Israeli company, for the development of a new generation of
amplifiers.
We devote a large portion of our research and development resources towards next
generation products and developing products for customers who exhibit long-term
revenue and growth potential.
18
We have also received funding from the Canadian Israel Research and Development
Foundation. Under this agreement we are eligible to receive conditionally
repayable government assistance amounting to $266,595 (CDN$350,000) to support
the development of a multi-carrier linear power amplifier. During 2003 we
claimed gross proceeds of $163,456 (CDN$233,333) which have been recorded as
government grant income and appears as a reduction of operating expenses in the
Consolidated Statement of Operations and Comprehensive Loss. Under the terms of
the agreement, commencing with the first commercial transaction, 2.5% of yearly
gross sales shall be paid until 100% of the grant has been repaid. As of
December 31, 2003, no sales have occurred which would cause repayment.
During the years ended December 31, 2003 and 2002, we spent $860,898 and
$1,544,090, respectively, on research and development activities, net of
stock-based compensation (recovery) of $30,932 and ($116,747), respectively.
Sales and Marketing of Our Products
Our principal customers are the original equipment manufacturers of repeaters
and base stations. The original equipment manufacturers sell their products,
which include our radio frequency power amplifiers, to the operators of wireless
networks.
We also sell our products through independent sales agents who are paid on
commission basis and through sales individuals who are engaged on a full time
basis as employees of the Corporation. We develop this sales channel by focusing
on identifying and engaging sales representatives who sell our products in other
markets.
Our sales to date have been by way of purchase orders that typically cover
periods ranging from several months to one year. We have no sales agreements
that extend beyond one year.
Manufacturing and Suppliers
We subcontract a portion of our manufacturing of our electronics components to
qualified companies with a history of quality assurance. This minimizes the need
for capital expenditures related to electronics manufacturing facilities,
minimizes staff and allows us to utilize specialists in each stage of
manufacturing. Alternate contract manufacturers are available, should any of our
existing contract manufacturers cease providing services to us. We currently
assemble, configure, tune and test our products and radio frequency circuitry in
our facility located in Burnaby, British Columbia, Canada. We have limited
capacity, and the process to assemble, test and tune our current products is
labor intensive.
The principal raw materials used in the production of our products are mostly
standard electronic, plastic and hardware components. We have from time to time
experienced difficulties in obtaining raw materials and we reduce supply risk by
using alternate suppliers.
Our arrangements with suppliers are on a short term basis. We have not entered
into any long term arrangements.
Competition and Competitive Advantage
There are three dominant companies that produce amplifiers and a number of
smaller ones. The dominant companies are Powerwave, Remec and Andrew.
Collectively, they represent a significant portion of the sales in the market
for amplifiers. These companies supply a much more integrated product line than
just power amplifiers to telecom and defense customers. These companies are very
large and supply the biggest OEM vendors in our industry and are able to
manufacture products in large volume. We compete with the smaller amplifier
companies in niche and specialty markets, and seek to win sales based on
superior technology and customer service.
19
Intellectual Property
We rely on a combination of trademarks and trade secrets to protect our
intellectual property. We execute confidentiality and non-disclosure agreements
with our management and engineering employees and limit access to, and
distribution of, our proprietary information.
Trade-Marks
We use the trade-mark "Unity Wireless", which is registered in Canada. We intend
to register the "Unity Wireless" trade-mark in the U.S.
Service and Product Warranty
We generally offer a standard warranty of one year on parts and labor from date
of shipment on our radio frequency amplifiers. In some cases, a warranty period
of up to two years may be negotiated. We repair units under warranty at our cost
and return the units freight prepaid back to the customer. A repaired unit will
typically be warranted for the remainder of the original warranty period or for
one year from the repair date, whichever is longer.
Our warranties specifically exclude all liabilities for "special, incidental,
direct, indirect, or consequential damages or expenses whatsoever" arising from
the functioning or use of, or inability to use, the warranted products. No
warranties are made in the event that product has been improperly installed,
subjected to abuse or negligence, or
tampered with. Consumer protection and other laws may limit our ability to limit
our liability or exclude certain types of damages.
Government Regulation
Our power amplifiers are sold as components that form part of larger systems.
The manufacturer or integrator of the systems must test them for compliance with
Federal Communications Commission (FCC) standards to avoid radio frequency
emissions that could interfere with other radio frequency transmissions or
similar regulatory standards in other countries. We do not test our amplifier
products for compliance at the component level. If a system in which our
amplifiers are included fails to satisfy applicable standards, whether due to
emissions from our amplifiers or other causes, sales of our amplifiers would be
adversely affected.
Significant Customers
We had sales of approximately $2,375,000 for the year ended December 31, 2003.
One customer accounted for 19% of sales and another customer accounted for 43%
of sales. No other customer accounted for more that 6.1% of our sales.
Employees
We currently employ 34 employees, of which 32 are employed on a full time basis.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Our
Securities and Exchange Commission filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov.
You may also read and copy any materials we file with the Securities and
Exchange Commission at the SEC's public reference room at 450 Fifth Street N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms.
20
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, under the Securities Act with respect to the securities
offered under this prospectus. This prospectus, which forms a part of that
registration statement, does not contain all information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of Unity Wireless, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. You may review a copy of the registration statement at the SEC's
public reference room. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our filings and the
registration statement can also be reviewed by accessing the SEC's website at
http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with our consolidated
audited financial statements and the related notes that appear elsewhere in this
registration statement. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this registration statement,
particularly in the section entitled "Risk Factors" beginning on page 6 of this
prospectus.
Our consolidated audited financial statements are stated in United States
Dollars and are prepared in accordance with United States generally accepted
accounting principles.
Results of Operations
YEARS ENDED DECEMBER 31, 2003 AND 2002
Sales
Net sales in 2003 decreased by 21% or $616,843, to $2,375,128 from $2,991,971 in
2002. The decrease was largely due to postponements in customer purchase
decisions in the third and fourth quarters of 2003 .
Cost of Goods Sold and Operating Expenses
Cost of goods sold during 2003 decreased by 19%, or $462,162, to $2,035,334 from
$2,497,496 in 2002. Cost of goods sold for 2003 included a $382,039 write-down
of inventory. Net of the write-down of inventory, of 382,039, cost of goods sold
for 2003 decreased by 34%, or $844,192, primarily as a result of various
efficiencies we introduced. Also, larger production runs gave us better
purchasing power. Cost of goods sold includes stock-based compensation expense
(recovery) of $682 in 2003 and $(30,898) in 2002.
The gross margin of $339,794 or 14% of net sales for the year ended December 31,
2003 represented a decrease from a gross margin of $494,475 or 17% of net sales
for the year ended December 31, 2002. Net of the write-down of inventory, the
gross margin for 2003 was $721,824 or 30% of net sales. The increase was due to
our cost cutting measures since the third quarter of 2002.
Research and development expenses for the year ended December 31, 2003 decreased
by 38%, or $535,513, to $891,830 from $1,427,343 for the year ended December 31,
2002. Net of stock-based compensation, research and development expenses
decreased by $683,192. This decrease primarily reflects a reduction in the
number of engineering personnel on staff during the year in 2003, as a number of
the 2002 research and development initiatives progressed to production stage.
Research and development expenses include stock-based compensation (recovery)
expense of $30,932 in 2003 versus $(116,747) in 2002.
Sales and marketing expenses for the year ended December 31, 2003 decreased by
46%, or $251,949, to $301,222 from $553,171 for the year ended December 31,
2002. Net of stock-based compensation, sales and marketing expenses decreased by
$348,442. The decrease primarily reflects reduced advertising, promotional
activities, tradeshow and travel expenses to visit new customers and
distributors. Sales and marketing expenses include stock-based compensation
(recovery) expense of $7,172 in 2003 versus $(89,321) in 2002.
21
Depreciation and amortization for the year ended December 31, 2003 decreased by
33%, or $29,274, to $60,306 from $89,580 in 2002. The return to lessors of
certain leased equipment resulted in a lower asset balance to be depreciated.
Exchange (gain)loss for 2003 decreased by $26,159, to an exchange loss of
$25,152, from an exchange loss of $51,311 for the year ended 2002 due to
fluctuations in the currency exchange rate between the U.S. and Canada. Our
revenues are received in U.S. dollars, while the majority of expenses are
incurred in Canadian dollars.
Interest expense for 2003 increased by $95,391, to $111,037 from $15,646 in
2002. The increase was the result of interest on outstanding loans payable and
convertible debenture issued later in 2002.
General and administrative expenses for 2003 decreased by 15%, or $181,237, to
$1,065,273 from $1,246,510 in 2002. Net of stock-based compensation ((recovery)
expense of $98,393 in 2003 (as compared to $(106,037) in 2002), general and
administrative expenses decreased by $385,667. The change was the net result of:
- An increase of $21,958 in corporate expenses due to additional
investor relation services of approximately $65,000 offset by a
reduction in professional service fees of approximately $43,000;
- an increase of $24,047 in facility expenses, and
- a decrease in other general and administrative expenses of 61% or
$431,672 to $360,536 from $792,208 that largely resulted from a
decline in the number of employees and a resulting decline in
salaries and related expenses.
Other Income and Expenses
"Accretion of interest and debt settlement" for 2003 increased by $1,243,129, to
$1,254,199 from $11,070 in 2002.
Accretion of interest relates to the issuance of convertible debentures. We
issued a warrant with each convertible debenture and recognized the shares
issuable upon conversion of the debentures and the warrants at their estimated
fair values, using the Black-Scholes model. This resulted in the convertible
debentures being initially recorded at discounted values and then amortized to
their original face value over the term of the debentures.
Debt settlement relates to the settlement of a promissory note. We issued and
settled a promissory note through the issuance of shares and warrants. We
recorded the value for the debt settlement by valuating the shares at its
trading value on the date of issuance and by valuating the warrants at their
estimated fair value on the date of issuance using the Black-Scholes model.
Other earnings in 2003 increased by 169%, or $67,125, to $106,837 from $39,712
in 2002. The 2002 amount resulted primarily from a $74,451 settlement of a
government debt offset by a loss on disposal of fixed assets of approximately
$35,000. The 2003 amount is due to a settlement with a leasing company resulting
from the return of certain leased equipment and a gain on the sale of securities
that had been written off in previous years.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have been dependent on investment capital as our primary
source of liquidity. We had an accumulated deficit at December 31, 2003 of
$18,503,080. During 2003, we incurred a net loss, inclusive of stock-based
compensation expense, of $3,007,950 (as compared to a loss of $2,664,841 in
2002).
During 2003, our cash position decreased significantly. The primary use of cash
was for our continued operations, which also included non-cash charges in
depreciation expense, stock-based compensation and accretion of interest on
convertible loans. Other significant non-cash working capital changes included a
decrease in inventory and a decrease in accounts payable and accrued
liabilities. We have on-going communications with our suppliers and are in
various stages of discussion with them regarding extended payment terms for
their respective outstanding December 31, 2003 accounts payable balances.
As of December 31, 2003, we had a working capital deficiency of $375,479. Our
operations presently are generating negative cash flow, and we do not expect
positive cash flow from operations in the near term. Our operations to date have
been primarily financed by sales of our equity and convertible securities. We
need to secure additional working capital in the short-term in order to sustain
our operations. Any inability to obtain sufficient
22
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 our inability to raise adequate
capital, may have a material adverse effect on our business, financial condition
and results of operations.
Due to uncertainty in our ability to meet our current operating and capital
expenses, in their report on the annual consolidated financial statements for
2003, our independent auditors included an explanatory paragraph regarding
concerns about our ability to continue as a going concern. Our consolidated
financial statements contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent auditors.
The issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders.
During 2003, we issued:
- 3,681,605 shares of common stock in settlement of $442,338 of
accounts payable,
- 11,794,782 shares of common stock upon exercise of warrants for cash
proceeds of $889,869,
- 73,000 shares of common stock upon exercise of options for cash
proceeds of $11,760,
- 10,372,673 shares of common stock upon conversion of convertible
debentures for a value of $624,514
- 1,806,666 shares of common stock upon conversion of a promissory
note for a value of $875,331 to Beth Med rash Govoha of Lakewood
- to Myer Bentob, a director of the Company, 833,333 shares of common
stock for cash proceeds of $108,333, together with warrants to
purchase 416,667 shares of common stock at US $0.26 per share
- warrants to purchase 6,865,484 shares, at US$0.10 per share, to
holders of convertible notes who exercised previous warrants to
purchase the same number of shares at an exercise price that was
reduced to US$0.05 per share from CDN$0.15 per share
- warrants to purchase 1,666,666 shares at US$0.10 per share to Beth
Medrash Govoha of Lakewood,
- warrants to purchase 100,000 shares at US$0.20 per share to Michael
Mulshine, and
- warrants to purchase 150,000 shares at US$0.25 per share to Michael
Mulshine.
We also extended the expiry date of 2,317,857 warrants, which were issued on May
15, 2002, with an exercise price of CDN$0.35, from an expiry date of May 14,
2003 to May 14, 2004. During the period, the Company agreed to amend the
conversion price of US$605,435 principal amount of convertible debentures from
CDN$0.15 to US $0.06, and all the debentures were converted at this conversion
price.
Subsequent to December 31, 2003, 6,032,150 warrants were exercised for total
cash proceeds of $603,215, and the Company issued to the holders of these
warrants 6,032,150 additional warrants exercisable at $0.15 per share. In
addition, 5,170,384 warrants were exercised for total cash proceeds of $767,558,
and the Company issued to the holders of these warrants 2,585,192 additional
warrants exercisable at $0.50 per share.
Other than operating loan commitments and a commitment under existing leases for
an aggregate of $435,000 through 2009, we have no material commitments,
including capital commitments, outstanding at December 31, 2003.
We had no material investing activities in 2003.
23
Inflation/Seasonal Aspects
We do not believe that inflation, had a significant impact on our consolidated
results of operations or financial condition. The are no seasonal aspects to the
Company's business.
Application of Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. We believe that understanding the basis and
nature of the estimates and assumptions involved with the following aspects of
our consolidated financial statements is critical to an understanding of our
financials.
Our consolidated financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of liabilities in
the normal course of operations. The continuation as a going concern for the
foreseeable future is dependent upon the identification and successful
completion of additional debt or equity financing or the generation of positive
cash flows from operating activities. Our ability to raise financing is, in
part, based on market conditions that are outside of our control. If we are not
able to continue as a going concern, we would likely not be able to realize on
our assets at values comparable to the carrying value or the fair value
estimates reflected in the balances set out in the preparation of the
consolidated financial statements. Based on the carrying value of assets at
December 31, 2003, the inability to continue as a going concern would require
liquidation of assets not in the normal course that would primarily impact
inventory, equipment and goodwill's recoverable amounts.
Inventory is carried at the lower of cost, determined on an average cost method,
and market. Market is considered to be replacement cost for raw materials and
net realizable value for work in progress and finished goods. The cost of work
in progress and finished goods includes the cost of raw material, direct labor,
and an appropriate allocation of related overhead. We provide an allowance that
we consider to be reasonable for its non-moving or slow moving inventory items
and for items with expected future realizable value lower than cost. Changes in
customer demands and requirements in the short term could reduce product demand
and prices having a material impact on future realizable value of inventory.
Equipment is recorded at cost less accumulated depreciation. We review these
assets for impairments when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. As actual future
net cash flows are uncertain, the estimation process requires us to make
reasonable assumptions about future economic trends and events. These trends and
events are substantially outside of our control. To the extent that the expected
future cash flows generated by the asset are reduced, we may be required to
record an impairment charge against the carrying value of the equipment.
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 our 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. We consider ourselves to
operate as a
24
single reporting unit. Fair value of the reporting unit is measured by reference
to such factors as estimated future cash flows and the market value of our
shares of common stock. Changes in these factors could impact future impairment
conclusions.
On an ongoing basis, we record our best estimate of our warranty obligations
related to products sold. A liability for estimated warranty expense is
established by a charge against costs of goods sold at the time revenue is
recognized as the products are sold. These estimates are made after the
consideration of contractual warranty obligations and historical experience. The
subsequent actual costs incurred for warranty claims serve to reduce the product
warranty liability that we have estimated. Unforeseen events, including
increased technological difficulties with products, could occur that have not
been anticipated in estimating the warranty provision. Additional costs or
estimates will be recognized as determinable.
We recognize revenue when criteria specified in generally accepted accounting
principles have been met. Specifically, revenue from products is recognized once
a sale arrangement exists, delivery has occurred, the revenue is determinable
and collectability is reasonably assured, which is upon the later of shipment or
when title passes to the customer depending on the contractual terms. We do not
enter into sales arrangements having post contract customer support or rights of
return. We record deferred revenue when cash is received in advance of the
revenue recognition criteria (discussed above) being net. Although we have no
current intention of doing so, changes in our business model could impact the
timing of recognition in our consolidated financial statements.
DESCRIPTION OF PROPERTY
Our executive and head offices are located at 7438 Fraser Park Drive, Burnaby,
British Columbia, V5J 5B9. The offices are approximately 11,000 square feet in
size and are leased on a six-year basis, expiring June 30, 2009, at a monthly
rent of approximately $6,500 (CDN$8,500) excluding property taxes, maintenance
and utilities. Our current premises are adequate for our current operations and
we do not anticipate that we will require any additional premises in the
foreseeable future.
In March, 2003, we opened a customer support office in China located in
Shenzhen, China. We rent this office, which has approximately 500 square feet,
on a month to month basis for $415 (CDN$600) plus operating expenses per month.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as disclosed below, there have been no transactions, or proposed
transactions, which have materially affected or will materially affect us in
which any director, executive officer or beneficial holder of more than 5% of
the outstanding common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest.
Our board of directors agreed to advance $90,000 to John Robertson, the former
president, Chief Executive Officer and a director of our company, to enable him
to subscribe for 500,000 units in conjunction with the private placement
completed on December 24, 2001. The loan principal plus interest was due on
December 24, 2003 and was secured by the units being issued. On May 24, 2002,
the units as well as all obligations under this loan were transferred to Mark
Godsy, the former Chairman of our board of directors. On August 20, 2002, Mark
Godsy repaid and satisfied his obligations under the terms of the loan by
repaying the $90,000 principal amount and exercising 500,000 warrants at an
exercise price of $0.30 per share for total gross proceeds of $150,000. For
financial statement reporting purposes, this loan was recorded as a reduction in
stockholders' equity until August 20, 2002, the repayment date.
In November 2002, Casey O'Byrne, who was then a director, through an affiliated
corporation purchased CDN $100,000 principal amount of convertible debentures
that were originally convertible at CDN $0.15 Canada, and warrants to purchase
666,667 shares at an original exercise price of CDN $0.15. The conversion price
was subsequently reduced to US $0.06, and the warrant exercise price was reduced
to US $0.05. Mr. O'Byrne subsequently converted all of these debentures and
exercised all of these warrants, at which point we issued to him 666,6667
replacement warrants at US $0.10. This prospectus covers the sale of the shares
issued on such conversion and on exercise of the replacement warrants.
25
Our director and corporate secretary, Andrew Chamberlain, is a partner in a law
firm to which we paid $13,658 for legal services during the year ended December
31, 2003 and $9,249 during the year ended December 31, 2002.
In August 2003 we entered into a consulting agreement with Myer Bentob that
expires on December 31, 2005. Under the agreement, Mr. Bentob agreed, among
other things, to assist the Company's sales and marketing efforts. The Company
agreed to nominate him to be a director and Executive Vice Chairman, and to pay
a fee to an entity controlled by Mr. Bentob equal to CDN $84,000 per year, plus
commission at a maximum rate of 1.8% of amounts collected by the Company from
specified clients. The agreement also contains a non-compete provision that
continues for six months after termination, and confidentiality requirements.
Mr. Bentob is a director and Executive Chairman of the Company.
In August 2003, the Company in a private placement issued to Mr. Bentob 833,333
shares of common stock for US $108,333, together with warrants to purchase
416,667 shares at US $0.26 per share.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In the United States, our common stock is traded on the National Association of
Securities Dealers OTC Bulletin Board under the symbol "UTYW." Between February
6, 1999 and August 17, 2000, our common stock traded under the symbol "ZSON."
Before February 6, 1999, our common stock traded under the symbol "MMIM." The
following quotations obtained from Canada Stockwatch reflect the highs and low
bids for our common stock based on inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
The high and low bid prices of our common stock for the periods indicated below
are as follows:
----------------------------------------------------------------------------------------------------------------
OTC BULLETIN BOARD (1) TSX VENTURE EXCHANGE (2)
(CDN$)
----------------------------------------------------------------------------------------------------------------
QUARTER ENDED HIGH LOW QUARTER ENDED HIGH LOW
----------------------------------------------------------------------------------------------------------------
December 31, 2003 $0.30 $0.16 December 31, 2003 -- --
----------------------------------------------------------------------------------------------------------------
September 30, 2003 $0.23 $0.10 September 30, 2003 -- --
----------------------------------------------------------------------------------------------------------------
June 30, 2003 $0.14 $0.05 June 30, 2003 $0.17 $0.06
----------------------------------------------------------------------------------------------------------------
March 31, 2003 $0.19 $0.09 March 31, 2003 $0.26 $0.11
----------------------------------------------------------------------------------------------------------------
December 31, 2002 $0.17 $0.07 December 31, 2002 $0.28 $0.11
----------------------------------------------------------------------------------------------------------------
September 30, 2002 $0.29 $0.14 September 30, 2002 $0.40 $0.21
----------------------------------------------------------------------------------------------------------------
June 30, 2002 $0.48 $0.20 June 30, 2002 $0.73 $0.35
----------------------------------------------------------------------------------------------------------------
March 31, 2002 $0.38 $0.16 March 31, 2002 $0.60 $0.27
----------------------------------------------------------------------------------------------------------------
(1) Over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
(2) Our common stock began trading on the TSX Venture Exchange (formerly
the Canadian Venture Exchange) on December 24, 2001 and stopped trading on
June 6, 2003 when the Corporation voluntarily de-listed from the exchange.
Computershare Trust Company of Canada, 4th Floor, 510 Burrard Street, Vancouver,
British Columbia, V6C 3B9 (Telephone: (604) 661-9400; Facsimile: (604) 661-9401)
is the registrar and transfer agent for our shares of common stock.
On April 15, 2004, the shareholders' list of our shares of common stock showed
185 registered shareholders and 77,591,069 shares outstanding.
We have not declared any dividends since incorporation and do not anticipate
that we will do so in the foreseeable future. Although there are no restrictions
that limit the ability to pay dividends on our shares of common stock, our
intention is to retain future earnings for use in our operations and the
expansion of our business.
26
Equity Compensation Plan Information
Our current stock option plan was adopted by our directors on December 6, 1999
and was approved by our shareholders on July 5, 2000. The following table
provides a summary of the number of options granted under our stock option plan,
the weighted average exercise price and the number of securities remaining
available for issuance all as at December 31, 2003.
-----------------------------------------------------------------------------------------
Number of Shares of common Weighted-Average exercise Number of securities
stock to be issued upon price of outstanding options remaining available for
exercise of outstanding future issuance under
options equity compensation plans
(excluding securities
reflected in column (a))
-----------------------------------------------------------------------------------------
5,126,083 $0.19 7,589,707(1)
-----------------------------------------------------------------------------------------
(1) On July 5, 2000, our stockholders approved a change in the maximum
number of options issuable under the plan to 20% of the number of shares
of common stock outstanding including shares of common stock issuable
under the plan. As at December 31, 2003, the maximum number was
12,715,790. For further information on our stock option plan, refer to
footnote 10 of the audited consolidated financial statements included with
this annual report.
EXECUTIVE COMPENSATION
During the year ended December 31, 2003, only Ilan Kenig served as an executive
officer. None of our other officers earned $100,000 or more in total salary and
bonus during 2003, 2002 or 2001.
------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation (1)
------------------------------------------------------------------------------------------------------------------------
Awards Payouts
------------------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary Bonus Other Securities Restricted LTIP All Other
Position (US$) (US$) Annual Underlying Shares or Payouts Compen-
Compen- Options/ Restricted (US$) sation
sation SARs Share
(US$) (1) Granted Units
------------------------------------------------------------------------------------------------------------------------
Ilan Kenig 2003 $72,000(2) Nil Nil 800,000(2) Nil Nil Nil
Chief Executive 2002 $74,943(2) Nil Nil 575,000(2) Nil Nil Nil
Officer (2) 2001 $6,500(2) Nil Nil 100,000(2) Nil Nil Nil
------------------------------------------------------------------------------------------------------------------------
(1) The value of perquisites and other personal benefits, securities and
property for Mr. Kenig that do not exceed the lesser of $50,000 or 10% of
the total of the annual salary and bonus is not reported herein.
(2) Mr. Kenig was appointed as our Chief Executive Officer on October 31,
2002 and as our President on April 1, 2002. Mr. Kenig was appointed as VP
Business Development in November, 2001. Our company did not have a Chief
Executive Officer between April 1, 2002 and October 30, 2002.
The following table sets forth for Ilan Kenig certain information concerning
stock options granted to him during the year ended December 31, 2003.
27
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
----------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to
SARs Employees Exercise
Name Granted in Fiscal Price
(#) Year(1) ($/Share) Expiration Date
----------------------------------------------------------------------------------------------
Ilan Kenig 800,000(2) 43% $0.15 September 15, 2008
Chief Executive Officer
----------------------------------------------------------------------------------------------
(1) The denominator (of 1,865,000) was arrived at by calculating the net
total number of new options awarded during the year.
(2) Ilan Kenig received 400,000 options on September 15, 2003 exercisable
at $0.15 per share and vest over two years or vest immediately based on
achieving certain performance criteria. Ilan Kenig also received 400,000
options on September 15, 2003 exercisable at $0.15 per share, vesting
immediately.
The following table sets forth for Ilan Kenig certain information concerning the
number of shares subject to both exercisable and unexercisable stock options as
of December 31, 2003
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised In-the
Unexercised Options/SARs at -Money Options/SARs at FY-
FY-End (#) end ($)
Shares Aggregate
Acquired on Value Exercisable / Exerciseable / Unexerciseable(1)
Name Exercise (#) Realized Unexercisable
--------------------------------------------------------------------------------------------------------------------
Exerciseable Unexerciseable Exerciseable Unexerciseable
--------------------------------------------------------------------------------------------------------------------
Ilan Kenig Nil Nil 952,083 522,917 $36,750 $20,250
--------------------------------------------------------------------------------------------------------------------
(1) The values for "in-the-money" options are calculated by determining
the difference between the fair market value of the securities underlying
the options as of December 31, 2003 ($0.19 per share on OTC Bulletin
Board) and the exercise price of the individual's options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
See "Certain Relationships and Related Transactions" for a services agreement
dated August 7, 2003 between the Company and Mr. Bentob.
28
COMPENSATION OF DIRECTORS
Our directors receive $1,000 per board meeting and $500 per committee meeting.
Directors are entitled to reimbursement of expenses incurred in attending
meetings. In addition, our directors are entitled to participate in our stock
option plan. We have adopted a policy whereby members of our board of directors
receive initial grants of options upon appointment as follows:
Chairman 200,000 options
Director (other than Chairman) 75,000 options
Compensation Committee 5,000 options
Audit Committee 5,000 options
There are no arrangements or plans in which we provide pension, retirement or
similar benefits for directors or executive officers.
29
Consolidated Financial Statements
(Expressed in United States dollars)
UNITY WIRELESS CORPORATION (Prepared in accordance with
United States generally accepted accounting principles)
Years ended December 31, 2003 and 2002
30
AUDITORS' REPORT
To the Board of Directors
Unity Wireless Corporation
We have audited the accompanying consolidated balance sheets of Unity Wireless
Corporation as at December 31, 2003 and 2002 and the related consolidated
statements of operations and comprehensive loss, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Unity Wireless
Corporation as at December 31, 2003 and 2002 and the results of its operations
and its cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. As discussed in note 2 to the
financial statements, the Corporation has incurred recurring losses from
operations and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP (SIGNED)
Chartered Accountants
Vancouver, Canada
February 25, 2004, except as to note 16,
which is as of April 22, 2004
31
UNITY WIRELESS CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted
accounting principles)
Years ended December 31, 2003 and 2002
------------------------------------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 58,057 $ 335,818
Restricted cash (note 6) 95,210 88,160
Accounts receivable (less allowance for doubtful
accounts of $11,503 in 2003 and $33,059 in 2002) 194,657 231,505
Government grant receivable -- 29,197
Inventory (note 4) 359,448 461,385
Prepaid expenses and deposits 50,134 39,040
------------------------------------------------------------------------------------------------------------------
757,506 1,185,105
Deferred financing cost -- 38,994
Equipment, net (note 5) 155,364 211,700
Patents 4,254 8,507
Goodwill 741,596 741,596
------------------------------------------------------------------------------------------------------------------
$ 1,658,720 $ 2,185,902
------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 6) $ 112,561 $ 101,411
Accounts payable and accrued liabilities (note 7) 957,221 1,244,377
Loans payable (note 9) 25,119 202,514
Product warranty (note 14(c)) 38,084 31,720
------------------------------------------------------------------------------------------------------------------
1,132,985 1,580,022
Convertible debenture (note 8) -- 137,247
------------------------------------------------------------------------------------------------------------------
1,132,985 1,717,269
Stockholders' equity:
Common stock, $0.001 par value 100,000,000 authorized,
63,578,953 (2002 - 35,016,894) issued and outstanding 63,579 35,017
Additional paid-in capital 18,831,807 15,811,919
Accumulated deficit (18,503,080) (15,495,130)
Accumulated other comprehensive income:
Cumulative translation adjustments 133,429 116,827
------------------------------------------------------------------------------------------------------------------
525,735 468,633
------------------------------------------------------------------------------------------------------------------
$ 1,658,720 $ 2,185,902
------------------------------------------------------------------------------------------------------------------
Future operations (note 2)
Commitments (note 11)
Contingent liabilities (note 14)
Subsequent event (note 16)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
/s/ Ilan Kenig Director /s/ Ken Maddison Director
----------------------------------- --------------------------------
32
UNITY WIRELESS CORPORATION
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Years ended December 31, 2003 and 2002
-----------------------------------------------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------------------------------------------
Net sales $ 2,373,128 $ 2,991,971
Cost of goods sold (includes stock-based compensation
of $682 in 2003 and ($30,898) in 2002 and excludes
depreciation shown separately below) 2,035,334 2,497,496
-----------------------------------------------------------------------------------------------------------------
339,794 494,475
Expenses:
Research and development (includes stock-based
compensation of $30,392 in 2003 and ($116,747) in 2002 891,830 1,427,343
Government grant (note 14) (254,438) (192,986)
Sales and marketing (includes stock-based compensation
of $7,172 in 2003 and ($89,321) in 2002 301,222 553,171
Depreciation and amortization 60,306 89,580
Exchange loss 25,152 51,311
Interest expense 111,037 15,646
General and administrative (includes stock-based
compensation of $98,393 in 2003 and ($106,037) in 2002 1,065,273 1,246,510
-----------------------------------------------------------------------------------------------------------------
2,200,382 3,190,575
-----------------------------------------------------------------------------------------------------------------
Operating loss for the year (1,860,588) (2,696,100)
Interest earnings -- 2,617
Accretion of interest and debt settlement (notes 8 and 9) (1,254,199) (11,070)
Other earnings 106,837 39,712
-----------------------------------------------------------------------------------------------------------------
Loss for the year $ (3,007,950) $ (2,664,841)
-----------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Loss for the year $ (3,007,950) $ (2,664,841)
Currency translation adjustment 16,602 (401)
-----------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (2,991,348) $ (2,665,242)
-----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (note 10(a)): $ (0.07) $ (0.08)
-----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
33
UNITY WIRELESS CORPORATION
Consolidated Statements of Stockholders' Equity
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted
accounting principles)
-----------------------------------------------------------------------------------------------------------------------------
Common
stock Additional Deferred
Common issues and paid-in Subscription stock Accumulated
Stock outstanding capital receivable compensation deficit
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 30,915,704 30,916 14,896,893 (90,600) (199,198) (12,830,289)
Issued on exercise of options and
warrants 1,783,333 1,783 448,884 -- -- --
Issued pursuant to private placement 2,317,857 2,318 646,682 -- -- --
Share issue costs -- -- (156,591) -- -- --
Warrants issued as financing cost on
private placement -- -- 38,994 -- -- --
Compensation expense of options and
warrants -- -- (343,003) -- -- --
Beneficial conversion option on
convertible debenture -- -- 479,258 -- -- --
Deferred stock compensation -- -- (199,198) -- 199,198 --
Loss for the year -- -- -- -- -- (2,664,841)
Currency translation adjustment -- -- -- -- -- --
Comprehensive loss
Repayment of share subscription
receivable -- -- -- 90,600 -- --
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2002 35,016,894 $ 35,017 $15,811,919 $ -- $ -- $(15,495,130)
Issued on exercise of options and
warrants 11,867,782 11,868 889,761 -- -- --
Issued pursuant to private placement 833,333 833 107,500 -- -- --
Issued on settlement of accounts payable 3,681,605 3,682 438,656 -- -- --
Issued on conversion of convertible
debenture 10,372,673 10,373 614,141 -- -- --
Issued on conversion of promissory note
(note 9) 1,806,666 1,806 873,525 -- -- --
Compensation expense of options and warrants -- -- 137,179 -- -- --
Share issue costs -- -- (40,874) -- --
Loss for the year -- -- -- -- -- (3,007,950)
Currency translation adjustment -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2003 63,578,953 $ 63,579 $18,831,807 $ -- $ -- $(18,503,080)
-----------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other Total
comprehensive stockholders'
(loss) income equity
-------------------------------------------------------------------------
Balance December 31, 2001 117,228 1,924,950
Issued on exercise of options and
warrants -- 450,667
Issued pursuant to private placement -- 649,000
Share issue costs -- (156,591)
Warrants issued as financing cost on
private placement -- 38,994
Compensation expense of options and
warrants -- (343,003)
Beneficial conversion option on
convertible debenture -- 479,258
Deferred stock compensation -- --
Loss for the year -- (2,664,841)
Currency translation adjustment (401) (401)
--------------
Comprehensive loss (2,665,242)
Repayment of share subscription
receivable -- 90,600
-------------------------------------------------------------------------
Balance December 31, 2002 $ 116,827 $ 468,633
Issued on exercise of options and
warrants -- 901,629
Issued pursuant to private placement -- 108,333
Issued on settlement of accounts payable -- 442,338
Issued on conversion of convertible
debenture -- 624,514
Issued on conversion of promissory note
(note 9) -- 875,331
Compensation expense of options and warrants -- 137,179
Share issue costs -- (40,874)
Loss for the year -- (3,007,950)
Currency translation adjustment 16,602 16,602
--------------
Comprehensive loss (2,991,348)
-------------------------------------------------------------------------
Balance December 31, 2003 $ 133,429 $ 525,735
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
34
UNITY WIRELESS CORPORATION
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted
accounting principles)
Years ended December 31, 2003 and 2002
-----------------------------------------------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------------------------------------------
Operations:
Loss for the year $ (3,007,950) $ (2,664,841)
Adjustments to reconcile net loss to net cash used in
operating activities:
Accretion of interest and debt settlement 1,254,199 11,070
Depreciation and amortization 60,306 89,580
Forgiveness of debt -- (74,451)
Forgiveness of lease obligation -- (135,005)
Loss on disposal of assets -- 209,296
Stock-based compensation 137,179 (343,003)
Changes in non-cash working capital relating to operations:
Accounts receivable and government grant receivables 110,906 (29,502)
Inventory 182,272 58,131
Prepaid expenses (3,056) (397)
Accounts payable and accrued liabilities (60,715) 585,794
Other receivable -- 18,241
-----------------------------------------------------------------------------------------------------------------
(1,326,859) (2,275,087)
Investments:
Acquisition of equipment (2,298) (61,527)
Disposition of equipment 2,581 --
Acquisition of patents -- (8,507)
Restricted cash (note 6) 9,968 (8,160)
-----------------------------------------------------------------------------------------------------------------
10,251 (78,194)
Financing:
Bank indebtedness (8,618) (137,256)
Loans payable (95,913) 202,514
Repayment of capital lease obligation -- (49,388)
Cash proceeds on issuance of convertible debenture -- 605,435
Repayment of share subscription receivable -- 90,600
Cash proceeds on issuance of common shares 108,333 1,099,667
Common shares issued upon warrants exercised 889,869 --
Common shares issued upon options exercised 11,760 --
Share issue costs (1,880) (156,591)
-----------------------------------------------------------------------------------------------------------------
903,551 1,654,981
Effect of foreign exchange rate changes on cash and
cash equivalents 135,296 21,688
-----------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (277,761) (676,612)
Cash and cash equivalents, beginning of year 335,818 1,012,430
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 58,057 $ 335,818
-----------------------------------------------------------------------------------------------------------------
Supplementary information (note 15)
See accompanying notes to consolidated financial statements.
35
1. NATURE OF BUSINESS:
Unity Wireless Corporation (the "Corporation") was incorporated in
Delaware on October 1, 1998 under the name Sonic Systems Corporation
("Sonic Delaware"). Sonic Delaware changed its name to Unity Wireless
Corporation on July 17, 2000. The Corporation is a designer, developer and
manufacturer of wireless technologies and produces high power linear radio
frequency (RF) amplifiers. High power linear RF amplifiers are used in
both mobile and fixed wireless voice, Internet and data base station and
repeater networks and support Cellular, PCS (Personal Communications
Services), Paging and WLL (Wireless Local Loop) frequencies.
2. FUTURE OPERATIONS:
During the year, the Corporation incurred a loss, inclusive of stock-based
compensation, of $3,007,950 (2002 - $2,664,841) and used cash in
operations of $1,326,859 (2002 - $2,275,087). In addition, at December 31,
2003, the Corporation has a working capital deficiency of $375,479.
The Corporation is investing in new technologies for medium and long-term
strategic positioning. A recent licensing agreement (note 14(b)(i)), and
ongoing investigations of new technologies designed to increase the
linearity and efficiency of RF amplifiers when designed into the
Corporation's products, is expected to provide a competitive edge in both
pricing and performance. The resulting products, planned for introduction
starting in early 2004, will be sold to existing customers and are also
expected to open new opportunities for the Corporation as it projects
growth in the market for third generation digital wireless ("3G") infill
products (repeaters, micro-cells and smart antennas) in 2004. The
Corporation's medium term strategy is to leverage this technology to
increase sales and establish technical credibility in the 3G market over
the next nine to eighteen months.
The Corporation's 3G feedforward LPA, is also expected to allow the
Corporation to market to new markets, in particular with base station
manufacturers, in the medium to longer term. The feedforward and other new
technologies will target OEMs of cellular systems and will be design-in
products.
These financial statements have been prepared on the going concern basis
under which an entity is considered to be able to realize its assets and
satisfy its liabilities in the ordinary course of business. Operations to
date have been primarily financed by long-term debt and equity
transactions. At December 31, 2003, the Corporation will require
additional financing to continue to operate at current levels throughout
2004. Accordingly, the Corporation's future operations are dependent upon
the identification and successful completion of additional long-term or
permanent equity financing, the continued support of creditors and
shareholders, and, ultimately, the achievement of profitable operations.
There can be no assurances that the Corporation will be successful. If it
is not, the Corporation will be required to reduce operations or liquidate
assets. The Corporation will continue to evaluate its projected
expenditures relative to its available cash and to seek additional means
of financing in order to satisfy its working capital and other cash
requirements. The consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
assets and liabilities that might be necessary should the Corporation be
unable to continue as a going concern.
36
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, Unity Wireless Systems
Corp. ("Unity Systems"). All significant intercompany accounts and
transactions have been eliminated.
(b) Use of estimates:
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets, particularly the recoverability of
inventory, equipment and goodwill, and liabilities (particularly
product warranty) and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
(c) Financial instruments:
At December 31, 2003, the Corporation has the following financial
instruments: cash and cash equivalents (including restricted cash),
accounts receivable, bank indebtedness, accounts payable and accrued
liabilities, and loans payable. The carrying value of these
financial instruments is considered to approximate fair value based
on their short-term nature.
The Corporation accounts for its derivative financial instruments in
accordance with SFAS No. 133, "Accounting for Derivative Instruments
and for Hedging Activities". This statement requires the Corporation
to recognize derivatives on its balance sheet at fair value. The
gains or losses resulting from changes in the fair value of
derivative instruments will either be recognized in current earnings
or in other comprehensive income, depending on the use of the
derivative and whether the hedging instrument is effective or
ineffective when hedging changes in fair value. For a derivative not
designated as a hedging instrument, the gain or loss is recognized
in earnings in the period of change of value. The Corporation did
not hold any derivative instruments and was not involved in any
hedging activities at December 31, 2003.
(d) Cash and cash equivalents:
Cash equivalents include short-term deposits, which are all highly
liquid securities with a term to maturity of three months or less
when acquired. Short-term deposits are valued at cost.
(e) Inventory:
Inventory is carried at the lower of cost, determined on an average
cost method, and market. Market is considered to be replacement cost
for raw materials and net realizable value for finished goods. The
cost of finished goods includes the cost of raw material, direct
labour, and an appropriate allocation of related overhead.
37
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Equipment:
Equipment is stated at cost. Depreciation is computed on a declining
balance basis over the estimated useful lives of the assets as
follows:
--------------------------------------------------------------------
Asset Rate
--------------------------------------------------------------------
--------------------------------------------------------------------
Computer equipment and software 30%
Furniture and fixtures 20%
Production and R&D equipment 20%
--------------------------------------------------------------------
Leasehold improvements are stated at cost and depreciated over the
term of the lease on a straight-line basis.
(g) Patents:
Consideration paid for acquiring patents is amortized on a
straight-line basis over three years commencing with the date the
patents are granted.
(h) 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 Corporation's reporting units that are
expected to benefit from the synergies of the business combination.
Goodwill is not amortized, but 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 its goodwill, an
impairment loss is recognized in an amount equal to the excess and
is presented as a separate line item in the statement of operations
before extraordinary items and discontinued operations.
38
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Impairment of long-lived assets:
Long-lived assets, such as equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of the assets to future undiscounted net cash flows
expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(j) Income taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. To the extent that it is
not considered to be more likely than not that a deferred tax asset
will be realized, a valuation allowance is provided.
(k) Advertising costs:
Advertising costs are expensed as incurred. The Corporation incurred
advertising expenses of $nil in 2003 and $24,870 in 2002.
(l) Foreign currency translation:
The Corporation's functional or primary operating currency is the
Canadian dollar while the reporting currency in the consolidated
financial statements is the United States dollar. The Corporation's
financial statements are prepared in Canadian dollars before
translation to the US dollar reporting currency. The Corporation
translates transactions in currencies other than the Canadian dollar
into Canadian dollar amounts at the exchange rate in effect on the
transaction date. Monetary assets and liabilities denominated in a
currency other than the Canadian dollar are translated at the
exchange rate in effect at the balance sheet date. The resulting
exchange gains and losses are recognized in earnings.
39
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(l) Foreign currency translation (continued):
Amounts reported in Canadian dollars have been translated into US
dollars as follows: assets and liabilities are translated into US
dollars at the rate of exchange in effect at the balance sheet date
and revenue and expense items are translated at the average rates
for the period. Unrealized gains and losses resulting from the
translation to the reporting currency are accumulated in cumulative
translation adjustments, a separate component of stockholders'
equity.
(m) Revenue recognition:
Revenue from products is recognized once a sale arrangement exists,
delivery has occurred, the revenue is determinable and
collectibility is reasonably assured, which is upon the later of
shipment or when title passes to the customer depending on the
contractual terms. The Corporation does not enter into sales
arrangements having post contract customer support or rights of
return. The Corporation records deferred revenue when cash is
received in advance of the revenue recognition criteria being met.
(n) Product warranty:
A liability for estimated warranty expense is established by a
charge against cost of goods sold at the time revenue is recognized
as products are sold. The subsequent costs incurred for warranty
claims serve to reduce the product warranty liability. The actual
warranty costs the Corporation will ultimately pay could differ
materially from this estimate.
(o) Research and development:
Research and development costs are expensed as incurred.
(p) Stock option plan:
The Corporation applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations including FASB Interpretation No. 44, "Accounting
for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25", to account for its employee
plan stock option grants. Under this method, compensation expense is
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation", established accounting
and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Corporation has elected to continue to apply
the intrinsic value-based method of accounting described above, and
has adopted the disclosure requirements of SFAS No. 123. Stock
compensation granted to non-employees is recognized at its fair
value as the services are provided and the options are earned.
40
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(p) Stock option plan (continued):
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 Corporation 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 Corporation
measures variable plan stock compensation as the amount by which the
quoted market value of the common shares of the Corporation's stock
at the reporting dates covered by the grant, exceeds the option
price with changes in the market price included in the measurement
of loss.
Had compensation cost been determined based on the fair value at the
grant dates for those options issued to employees and consultants,
consistent with the method described in SFAS No. 123, the
Corporation's loss and loss per common share would have been
increased to the pro forma amounts indicated below.
------------------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------------------
Loss for the year, as reported $ (3,007,950) $ (2,664,841)
Employee stock-based compensation expense
recognized 75,113 -
Total stock-based employee compensation
expense determined under fair value based
method for all awards (405,013) (17,475)
------------------------------------------------------------------------------------------------
Pro forma loss $ (3,337,850) $ (2,682,316)
------------------------------------------------------------------------------------------------
Basic and diluted loss per common shares,
net as reported $ (0.07) $ (0.08)
Pro forma (0.08) (0.08)
------------------------------------------------------------------------------------------------
The fair value of each option granted in 2003 and 2002 was estimated
on the date of the grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: no dividend
yield; volatility of 159% (2002 - 148%) based on weekly stock price;
risk-free interest rate of 3.25% (2002 - 3.25%) and an expected life
of four years.
The weighted-average fair value of options granted during 2003 and
2002 was $0.15 and $0.16 respectively.
41
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(q) Loss per common share:
The basic loss per share is computed by dividing the loss
attributable to common stockholders by the weighted average number
of common shares outstanding for that period. Escrow shares with
time-based vesting which are not contingently returnable are
included in the basic loss per share computation. Diluted loss per
share is computed using the treasury stock method, giving effect to
all dilutive potential common shares that were outstanding during
the period except to the extent where anti-dilutive.
(r) Government assistance:
Government assistance consists of government grants. Government
grants are received for specific research and development projects
approved by the agency. The Corporation 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 credited against the expenses incurred in the
statement of operations, as determined by the terms and conditions
of the agreement under which the assistance is provided to the
Corporation and the nature of the costs incurred. Government
assistance is recognized when receipt of the assistance is
reasonably assured. Reasonable assurance is based on the
Corporation's past experience with claims and collections. 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.
(s) Comprehensive loss:
Comprehensive loss measures all changes in stockholders' equity
excluding capital transactions. For the periods presented, other
comprehensive loss comprises of only foreign currency translation.
(t) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
(u) Recent pronouncements:
In May 2003, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("FAS") No. 150,
"Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" ("FAS No. 150"), which establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. FAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003. The Corporation has adopted FAS
No. 150, which had no effect on the consolidated financial
statements.
42
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(u) Recent pronouncements (continued):
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("FAS No.
149"), which amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under FAS
No. 133. FAS No.149 is to be applied prospectively for certain
contracts entered into or modified after June 30, 2003. The
Corporation has adopted FAS No. 149, which had no effect on the
consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which
requires the consolidation of a variable interest entity by the
primary beneficiary. FIN 46 also requires additional disclosure by
both the primary beneficiary and enterprises that hold a significant
variable interest in a variable interest entity. FIN 46 is
applicable to variable interest entities created after January 31,
2003. Entities created prior to February 1, 2003 must be
consolidated effective December 31, 2003. However, because the
Corporation does not have any variable interest entities, there is
no impact on the consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus regarding EITF Issue 00-21. The consensus addresses not
only when and how an arrangement involving multiple deliverables
should be divided into separate elements of accounting, but also how
the arrangement's consideration should be allocated among separate
units. The pronouncement is effective for revenue arrangements
entered into on or after July 1, 2003. The Corporation has adopted
EITF Issue 00-21, which had no effect on the consolidated financial
statements.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 expands on previously issued accounting guidance and requires
additional disclosure by a guarantor to recognize, at the inception
of a guarantee, a liability for the fair value of an obligation
assumed by issuing a guarantee. The provision for initial
recognition and measurement of the liability is applied on a
prospective basis to guarantees issued or modified after December
31, 2002. The Corporation has adopted FIN 45, which had no effect on
the consolidated financial statements.
43
4. INVENTORY:
-----------------------------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------------------------
Raw materials $ 345,172 $ 317,411
Finished goods 14,276 143,974
-----------------------------------------------------------------------------------------------
$ 359.448 $ 461,385
-----------------------------------------------------------------------------------------------
During the year, the Corporation recorded a write-down of inventory of
$382,030. The write-down of inventory was due to management's assessment of
the net realizable value of current inventory balances. The write-down has
been included in cost of goods sold.
5. EQUIPMENT:
Equipment consists of the following:
---------------------------------------------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost depreciation Cost depreciation
---------------------------------------------------------------------------------------------------------------
Computer equipment $ 148,019 $ 101,653 $ 145,721 $ 81,782
Computer software 80,515 53,679 84,290 49,159
Furniture and fixtures 49,537 22,456 49,537 18,934
Leasehold improvements 31,926 18,719 31,926 10,184
Production and R&D equipment 99,405 57,531 99,405 39,120
---------------------------------------------------------------------------------------------------------------
$ 409,402 $ 254,038 $ 410,879 $ 199,179
---------------------------------------------------------------------------------------------------------------
Net book value $ 155,364 $ 211,700
---------------------------------------------------------------------------------------------------------------
6. BANK INDEBTEDNESS:
The Corporation has a $95,210 (CDN$125,000) operating line bearing
interest at prime and secured by a $95,210 (CDN$125,000) guaranteed
investment certificate and a general security interest in all the
Corporation's assets.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
------------------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------------------
Trade accounts payable $ 788,298 $ 1,016,759
Accrued liabilities 168,923 227,618
------------------------------------------------------------------------------------------------
$ 957,221 $ 1,244,377
------------------------------------------------------------------------------------------------
44
8. CONVERTIBLE DEBENTURE:
During November and December, 2002, the Corporation realized gross cash
proceeds of $605,435 (CDN$956,323), from the issuance of 10% redeemable
convertible notes of the Corporation plus 6,375,483 share purchase
warrants on the completion of a private placement effected pursuant to
Regulation D under the Securities Act of 1933. The debenture was
convertible at the option of the holder. The agreements were signed on
November 20, 2002 and December 20, 2002 and the notes were to mature on
March 15, 2004. Interest on these notes was payable when the notes were
fully converted or redeemed. At the option of the Corporation, the
Corporation may make quarterly interest payments and redeem the notes in
cash or in shares of the Corporation's common stock. The conversion price
of the notes were $0.09 (CDN$0.15) per share and was subsequently repriced
to $0.06 during 2003.
Each warrant entitled the holder to purchase one of the Corporation's
common shares and was exercisable at a price of $0.09 (CDN$0.15) on or
before March 15, 2004, on which date the warrants will expire. These
warrants were subsequently repriced to $0.05 during 2003.
For accounting purposes, the Corporation calculated the fair value of
warrants originally issued using the Black-Scholes option pricing model
and the intrinsic value of the beneficial conversion feature which amounts
aggregated $479,258. These assigned values were recorded by a reduction to
the amount as initially assigned to the notes and as additional paid-in
capital. The intrinsic value of the beneficial conversion option was the
amount by which the fair value of the underlying common shares at the date
of the agreement exceeded the value of shares issuable based on the
carrying value of the debenture after reducing such carrying value for the
fair value of the warrants. The remaining balance of $126,177 was recorded
as a liability. The carrying value of the liability was being accreted to
the redemption value of the notes over the period from November and
December 20, 2002 to the initial maturity dates of March 15, 2004.
During the year ended December 31, 2003, accretion of $487,266 (2002 -
$11,070) has been recorded as a charge to the statement of operations, and
an increase in the carrying value of the liability. Advisors to the
private placement were entitled to a share commission of 10% on the face
value of the notes. As of December 31, 2002, 553,215 shares were due to be
issued to advisors as commission. These share subscriptions were recorded
as a deferred financing cost against additional paid-in capital.
In addition, all of the notes were converted into 10,372,673 common
shares. On conversion of these notes, the carrying value of the liability
was reclassified to common stock and additional paid-in capital.
45
9. LOANS PAYABLE:
-----------------------------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------------------------
Promissory notes $ 25,119 $ 202,514
-----------------------------------------------------------------------------------------------
As at December 31, 2003, the Corporation was indebted for $25,119 by way
of a promissory note payable, at an interest rate of 9.5% per annum,
repayable on demand.
During the year, the Corporation settled a promissory note of $100,000,
plus accrued interest of $8,398, with the issuance of 1,806,666 common
shares and 1,666,666 share purchase warrants. Each share purchase warrant
entitles the holder to purchase one common share for $0.10 per share.
Based on the fair value of the shares and warrants issued on the debt
settlement, an expense of $766,933 was recognized.
10. COMMON STOCK:
Authorized share capital:
100,000,000 common stock at par value of $0.001 per share
5,000,000 preferred stock at par value of $0.001 per share
(a) Loss per share:
The following table sets forth the computation of basic and diluted loss
per share:
--------------------------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------------------------
Numerator:
Loss for the period $ (3,007,950) $ (2,664,841)
Denominator:
Weighted average number of:
Common shares outstanding 42,650,874 33,269,173
--------------------------------------------------------------------------------------------------
Basic and diluted loss per common share $ (0,07) $ (0.08)
--------------------------------------------------------------------------------------------------
For the years ended December 31, 2003 and 2002, all of the Corporation'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.
46
10. COMMON STOCK (CONTINUED):
(b) Stock option plan:
During the year ended December 31, 1998, the Corporation established
a stock option plan pursuant to which 3,000,000 common shares were
reserved for issuance. This plan was replaced 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.
Where options issued after January 18, 2001 have an exercise price
in a currency that is not either the (a) functional currency of the
corporation of (b) the currency in which the employee is paid, the
options are to be accounted for as variable plan options and
compensation expense will be recorded equal to changes in the market
value of the underlying common shares at each reporting period.
The Corporation grants options in U.S. dollars when the functional
currency of the Corporation and the currency in which employees are
paid is the Canadian dollar. Accordingly, these employee options are
considered to be variable options. In addition, compensation expense
is recognized to the extent that options are granted having an
exercise price less than the market price of the underlying share on
the date of grant.
The Corporation grants options to non-employees. For these
non-employee options, compensation expense is recognized using the
fair value-based method of accounting per SFAS No. 123. The fair
value of non-employee grants in 2003 and 2002 was calculated using
the Block-Scholes option-pricing model with the following
weighted-average assumptions: no dividend yield; volatility of 159%
(2002 - 148%) based on weekly stock price; risk-free interest rate
of 3.25% (2002 - 3.25%) and expected lives between 1 to 5 years.
Included in expenses for 2003 is total stock-based compensation
(recovery) of $137,179 (2002 - $(343,003)).
47
10. COMMON STOCK (CONTINUED):
(b) Stock option plan (continued):
Stock option transactions for the respective periods and the number
of stock options outstanding are summarized as follows:
-----------------------------------------------------------------------------------------------------------
Outstanding options
------------------------------------------
Shares Number of Weighted
available
to be granted common average
under option shares issuable exercise price
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 3,388,250 4,340,750 $ 0.20
Options granted (2,150,000) 2,150,000 0.20
-- (383,334) 0.17
Options expired 995,999 (995,999) 0.27
Increase in reserved for issuance 1,058,389 -- --
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 3,292,638 5,111,417 0.20
Options granted (1,865,000) 1,865,000 0.15
Options expired 1,777,334 (1,777,334) 0.20
Options exercised -- (73,000) 0.16
Increase in reserved for issuance 4,384,735 -- --
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 7,589,707 5,126,083 $0.19
-----------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options under the
plan outstanding at December 31, 2003:
----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------------------
Weighted
Number average Weighted Number Weighted
outstanding remaining average outstanding average
Range of at contractual exercise at exercise
exercise prices December 31, life (yrs) price December 31, price
2003 2003
----------------------------------------------------------------------------------------------------------
$0.11 - 0.19 4,199,083 3.64 $0.15 2,304,536 $0.15
$0.23 - 0.30 320,000 3.36 $0.26 174,583 $0.25
$0.31 - 0.38 607,000 2.40 $0.36 496,666 $0.37
----------------------------------------------------------------------------------------------------------
5,126,083 3.48 $0.19 2,975,785 $0.20
----------------------------------------------------------------------------------------------------------
48
10. COMMON STOCK (CONTINUED):
(d) Stock option plan (continued):
Stock options become exercisable at dates determined by the Board of
Directors at the time of granting the option.
Stock options have initial terms of five years.
(e) Warrants:
The following non-transferable share purchase warrants were outstanding at
December 31, 2003:
-----------------------------------------------------------------------------------------------------------
Exercise price Number
Expiry date per share of shares
-----------------------------------------------------------------------------------------------------------
May 14, 2004 $CDN 0.35 505,384
July 15, 2005 $US 0.10 8,532,150
August 7, 2005 $US 0.26 416,667
October 1, 2007 $US 0.20 100,000
October 1, 2008 $US 0.25 150,000
-----------------------------------------------------------------------------------------------------------
11. COMMITMENTS:
The Corporation has the following future minimum lease commitments for
premises and equipment:
---------------------------------------------------------------------------
2004 $ 73,000
2005 79,000
2006 81,000
2007 81,000
2008 81,000
Thereafter 40,000
---------------------------------------------------------------------------
$ 435,000
---------------------------------------------------------------------------
In 2003, rent expense was $119,132 (2002 - $81,848).
49
12. INCOME TAXES:
At December 31, 2003, the Corporation has US tax net operating losses
approximating $2,300,000 which will begin to expire in 2018.
The Corporation has Canadian tax net operating losses of approximately
$11,182,000 which expire as follows:
--------------------------------------------------------------------------
2004 $ 1,556,000
2005 175,000
2006 1,465,000
2007 3,059,000
2008 1,141,000
2009 2,651,000
2010 1,135,000
--------------------------------------------------------------------------
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Corporation has recognized a valuation allowance equal to the deferred tax
assets due to the uncertainty of realizing the benefits of the assets.
Significant components of the Corporation's deferred tax assets as of
December 31 are as follows:
---------------------------------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry forwards $ 4,587,973 $ 4,309,257
Depreciation/amortization 337,944 266,232
Other 338,439 331,596
---------------------------------------------------------------------------------------------------
Total deferred tax assets 5,264,356 4,907,085
Valuation allowance (5,264,356) (4,907,085)
---------------------------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
---------------------------------------------------------------------------------------------------
50
13. SEGMENTED INFORMATION:
(a) Segment information:
During 2003 and 2002, the Corporation was operating only in the RF
power amplifier segment.
(b) Geographic information:
Substantially all assets and operations are in Canada. A summary of
sales by region of customer location is as follows ($000):
-------------------------------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------------------------------
Korea $ 93 $ 1,340
China 518 756
Sweden 164 88
United States 1,263 774
Israel 113 34
Canada 217 -
Other 7 -
-------------------------------------------------------------------------------------------------
Total sales $ 2,375 $ 2,992
-------------------------------------------------------------------------------------------------
(c) Major customers:
Sales to customers representing greater than 10% of total sales are
as follows ($000):
-------------------------------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------------------------------
Customer A $ 452 $ 394
Customer B 1,022 Less than 10%
Customer C Less than 10% 649
Customer D - 515
Customer E - 404
Customer F - 406
-------------------------------------------------------------------------------------------------
51
14. CONTINGENT LIABILITIES:
(a) The Corporation 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 Corporation held by it have a term of
unlimited duration.
The Corporation provides for costs related to contingencies when a
loss is probable and the amount is reasonably determinable. It is
the opinion of management, based in part on advice 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 Corporation.
(b) Contingent liability on sale of products:
(i) Under a license agreement, the Corporation is committed to
royalty payments based on the sales of products using certain
technologies. Royalties are paid between 6% to 7% of sales of
licensed products sold integrating the XNN Technology into
various products to a minimum of $150,000 within twelve months
subsequent to the first commercial sales of the integrated
product. No such sales have occurred to December 31, 2003. The
Corporation 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 Corporation is
eligible to receive conditionally repayable government
assistance amounting to $368,275 (CDN$483,491) to support the
development of a multi-carrier linear power amplifier. During
2003 the Corporation claimed gross proceeds of $90,982
(CDN$132,295), which have been recorded in the consolidated
statement of operations as government grant income as a
reduction of expenses incurred. Under the terms of the
agreement, an amount up to a maximum of $552,412 (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.
(iii) Under an agreement with the Canada Israel Industrial Research
& Development Foundation, the Corporation is eligible to
receive conditionally repayable government assistance
amounting to $266,595 (CDN$350,000) to support the development
of a multi-carrier linear power amplifier. During 2003 the
Corporation claimed gross proceeds of $163,456 (CDN$233,333),
which have been recorded in the consolidated statement of
operations as government grant income as a reduction of
expenses incurred. Under the terms of the agreement,
commencing with the first commercial transaction, 2.5% of
yearly gross sales shall be paid until 100% of the grant has
been repaid.
52
14. CONTINGENT LIABILITIES (CONTINUED):
(c) Product warranty:
The Corporation provides for estimated warranty costs at the time of
product sale. Warranty expense accruals are based on best estimate
with reference to historical claims experience. Since warranty
estimates are based on forecasts, actual claim costs may differ from
amounts provided. An analysis of changes in liability for product
warranties follows:
-------------------------------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------------------------------
Balance, beginning of year $ 31,720 $ 31.500
Provision increase 21,316 20,276
Expenditures (14,952) (20,056)
-------------------------------------------------------------------------------------------------
Balance, end of year $ 38,084 $ 31,720
-------------------------------------------------------------------------------------------------
15. SUPPLEMENTARY INFORMATION:
(a) Cash flow information:
---------------------------------------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------------------------------------
Cash paid for:
Interest $ 12,156 $ 26,716
Non-cash financing and investing activities:
Issuance of common shares in settlement of accounts
payable 442,338 --
Issuance of common shares on conversion of convertible
debenture 624,514 --
Issuance of common shares and warrants on settlement
of promissory note (note 9) 108,398 --
Warrants issued as financing cost on private placement (38,994) 38,994
Note payable on reclassification of accounts payable -- 106,559
Purchase of equipment funded by obligation
under capital lease -- 164,117
---------------------------------------------------------------------------------------------------------
53
15. SUPPLEMENTARY INFORMATION (CONTINUED):
(b) Allowance for doubtful accounts:
--------------------------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------------------------
Balance, beginning of year $ 33,059 $ 55,873
Bad debt expense - 15,253
Recoveries and other adjustments (21,556) (38,067)
--------------------------------------------------------------------------------------------------
Balance, end of year $ 11,503 $ 33,059
--------------------------------------------------------------------------------------------------
16. SUBSEQUENT EVENT:
Subsequent to December 31, 2003, 6,032,150 shares of common stock were
issued for cash proceeds of $603,215 on the exercise of warrants. An
additional 6,032,150 warrants were issued to the holders, exercisable at
$0.15 per share.
54
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
55
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our by-laws provide that directors and officers shall be indemnified by us to
the fullest extent authorized by the Delaware Business Corporation Act, against
all expenses and liabilities reasonably incurred in connection with services for
or on behalf of our company. To the extent that indemnification for liabilities
arising under the Securities Act may be permitted for directors, officers and
controlling persons of our company, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the selling stockholder. All of the
amounts shown are estimates, except for the SEC Registration Fees.
SEC registration fees $635.52
Printing and engraving expenses $0
Accounting fees and expenses $2,000(1)
Legal fees and expenses $10,000(1)
Transfer agent and registrar fees $1,000(1)
Fees and expenses for qualification under state $0
securities laws
Miscellaneous $1,000(1)
----------
Total $14,635.52
(1) We have estimated these amounts
RECENT SALES OF UNREGISTERED SECURITIES
In January 2001, we issued 100,000 warrants to each of Mueller & Company, Inc.
and Ideas Inc. at an exercise price of $0.38, which expire on March 31, 2005. In
April 2001, we issued 150,000 warrants to each of Mueller & Company, Inc. and
Ideas Inc. at an exercise price of $0.29, which expire on March 31, 2005. On
December 15, 2001, the consulting arrangement with Ideas Inc. was terminated and
the 250,000 warrants issued to Ideas Inc. expired on December 14, 2002.
On December 24, 2001, we completed a private offering of 5,147,551 units to a
group of private investors at $0.18 per unit in reliance upon Regulation D and
Regulation S of the Securities Act of 1933. Each unit consisted of one share of
common stock and one warrant exercisable to acquire one additional common share
at $0.30 per share until December 25, 2003. The Company subsequently registered
the resale of these shares and shares issuable or issued on exercise of the
warrants.
56
On May 14, 2002, we completed a private offering of 2,317,857 units to a group
of private investors at $0.28 per unit in reliance upon Regulation D and
Regulation S of the Securities Act of 1933. Each unit consisted of one share of
our common stock and one warrant exercisable to acquire one additional common
share at $0.35 per share until May 14, 2003. The Company subsequently registered
the resale of these shares and shares issuable or issued on exercise of the
warrants.
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. As a result of the exercise of the warrants, we issued a total of
899,999 shares of our common stock in reliance upon Regulation D and Regulation
S of the Securities Act of 1933. The Company subsequently registered the resale
of the shares issuable or issued on exercise of the warrants.
On August 20, 2002, a stockholder of our company exercised share purchase
warrants issued pursuant to the December 24, 2001 private placement. A total of
500,000 warrants were exercised at $0.30 per share for total gross proceeds of
$115,000. As a result of the exercise of the warrants, we issued a total of
500,000 shares of our common stock in reliance upon Regulation D and Regulation
S of the Securities Act of 1933. The Company subsequently registered the resale
of the shares issuable or issued on exercise of the warrants.
On November 20, 2002, we issued an aggregate of $524,359 (CDN$813,385) secured
convertible notes to five investors, together with warrants to purchase
5,532,150 shares. On December 20, 2002, we issued an aggregate of $92,146
(CDN$142,937.50) secured convertible notes to six investors, together with
warrants to purchase 843,333 shares. We issued the notes and warrants relying on
Rule 506 of Regulation D, Section 4(6) and/or Section 4(2) under the Securities
Act of 1933. The Company subsequently registered the shares issued or issuable
under these instruments.
On January 31, 2003, we issued 553,215 shares to Mueller & Company, Inc. These
shares were issued in reliance on Rule 506 of Regulation D of the Securities Act
of 1933 and subsequently registered.
During the year ended December 31, 2003, the Corporation issued 2,347,672 shares
of common stock in settlement of $345,413 of trade accounts payable, and
1,806,666 shares of common stock upon settlement of a promissory note with a
value of $875,331 to Beth Med rash Govoha of Lakewood. In addition, the
Corporation issued in a private placement to Myer Bentob, a director of the
Company, 833,333 shares of common stock for cash proceeds of $108,333.
Non-registered warrants were also issued, in conjunction with the private
placement to Myer Bentob, to purchase 416,667, at US$0.26 (CDN$0.36) per share.
The Company issued non-registered warrants to purchase 6,865,484 shares, at
US$0.10 per share, to holders of Secured Convertible Notes who exercised
previous warrants to purchase the same number of shares at an exercise price
that was reduced to US$0.05 per share from CDN$0.15 per share. The Company also
issued non-registered warrants to purchase 1,666,666 shares at US$0.10 per share
to Beth Med rash Govoha of Lakewood, 100,000 shares at US$0.20 per share to
Michael Mulshine, and 150,000 shares at US$0.25 per share to Michael Mulshine.
The Company also issued an additional 3,997,190 shares to holders of Secured
Convertible Notes as a result of the reduction in conversion price from CDN$0.15
per share to US$0.06 per share.
Subsequent to December 31, 2003, 6,032,150 warrants were exercised for total
cash proceeds of $603,215, and the Company issued to the holders of these
warrants 6,032,150 additional warrants exercisable at $0.15 per share. In
addition, 5,170,384 warrants were exercised for total cash proceeds of $767,558,
and the Company issued to the holders of these warrants 2,585,192 additional
warrants exercisable at $0.50 per share.
We issued these shares and warrants relying on Rule 506 of Regulation D, Section
4(6) and/or Section 4(2) under the Securities Act of 1933.
57
EXHIBITS
The following Exhibits are filed with this Prospectus:
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit
Number Description
3.1* Amended and Restated Certificate of Incorporation of Unity Wireless
Corporation (1)
3.2** Amended and Restated Bylaws of Unity Wireless Corporation (2)
4.1* Consulting agreement among Mueller & Company, Inc., Ideas, Inc., Mark
Mueller, Aaron Fertig and Unity Wireless Corporation dated January 1,
2001 (3)
4.2* Consulting agreement amendment among Mueller & company, Inc. and Unity
Wireless Corporation dated November 15, 2001 (3)
4.3* Consulting agreement among Myer Bentob and Unity Wireless Corporation
dated August 7, 2003 (12)
5.1** Opinion of Oscar D. Folger Law Offices (2)
10.1* Asset Purchase Agreement dated October 6, 2000 among Unity Wireless
Systems Corporation, a British Columbia, Canada, corporation, 568608
B.C. Ltd., a British Columbia, Canada corporation, Traffic Systems,
L.L.C., an Arizona limited liability company, Traffic Safety Products,
Inc., an Arizona corporation and James L. Hill (4)
10.2* Intellectual Property License Agreement, dated October 6, 2000, between
Unity Systems Corporation, as licensor, and Traffic Systems, LLC, as
licensee (4)
10.3* Share Purchase Agreement, dated November 16, 2000 among John Robertson,
Mirza Kassam, Chris Neumann, Robert Fetherstonhaugh, Unity Wireless
Corporation, Stirling Mercantile Corporation, Peter A. Scott Consulting
Ltd., W. Hugh Notman (5)
10.4* Asset Purchase Agreement, dated for reference December 30, 2000, among
Unity Wireless Integration Corporation as vendor, Lyma Sales &
Management Corp. as purchaser and Unity Wireless Corporation (6)
10.5* Agreement to Redeem Membership Interest, Transfer Intellectual Property
and Amend Asset Purchase Agreement, effective April 9, 2001, by and
among Traffic Systems, L.L.C., Unity Wireless Systems Corporation,
Traffic Safety Products, Inc. and Jim Hill (7)
10.6* 1999 Stock Option Plan, as amended (3)
10.7* Recommended Stock Option Grant Policy for our company (3)
58
10.8* Form of Private Placement Purchase Agreement, dated November 20, 2002,
among Unity Wireless Corporation, Unity Wireless Systems Corporation,
and each person or entity listed in 10.11 below. (8)
10.9* General Security Agreement, dated for reference November 20, 2002,
between each of the Investors listed in Schedule 1 to the Agreement,
Unity Wireless Systems Corporation and Jeffrey Rubin, as Agent. (8)
10.10* General Security Agreement, dated for reference, November 20, 2002,
between each of the Investors listed in Schedule 1 to the Agreement,
Unity Wireless Corporation and Jeffrey Rubin, as Agent.
10.11* Form of Secured Convertible Note issued by Unity Wireless Corporation
and Unity Wireless Systems Corporation in the aggregate principle
amount of $956,322.50
10.12* Licence Agreement, dated April 23, 2002, between Unity Wireless
Corporation and Paragon Communications. (8)
10.13* Agreement, dated July 19, 2002, between Unity Wireless Corporation and
Dekolink Wireless Ltd. (8)
10.14* Manufacturing Agreement, dated July 10, 2002, between Unity Wireless
Systems Corporation and Netro Corporation. (8)
10.15* Strategic Supply Agreement, dated June 19, 2002, between Unity Wireless
Systems Corporation and Avtec, AB. (8)
10.16* Investor Relations Agreement, dated April 10, 2002, between Unity
Wireless Corporation and Osprey Partners. (8)
10.17* Amendment to Investor Relations Agreement, dated September 20, 2002,
between Unity Wireless Corporation and Osprey Partners. (8)
10.18* Form of Addendum to Secured Convertible Note between Unity Wireless
Corporation, Unity Wireless Systems Corporation and each of the
following: (9)
S. Heiman
Casey J. O'Byrne Professional Corporation
Moshe Rosner
Jeffrey Rubin
William N. Weidman
Chancellor Apartments LLC
Gabrielle Chaput
Desmonde Farruga
Shalom Torah Centers
Sid M. Tarrabain Professional Corporation
Mokhlis Y. Zaki
10.19* Form of warrants issued in June and July 2003 to holders of Secured
Convertible Notes for an aggregate of 6,865,484 shares. (10)
10.20* Form of subscription agreement for shares of common stock and warrants
issued to Myer Bentob, in a private placement, for an aggregate of
833,333 shares and 416,667 warrants.(11)
59
10.21* Form of warrants issued to Myer Bentob, in a private placement, for an
aggregate of 416,667 shares.(11)
10.22* Form of warrants issued to Michael Mulshine for an aggregate of 100,000
shares (12)
10.23* Form of warrants issued to Michael Mulshine for an aggregate of 150,000
shares (12)
10.24* Form of agreement with Beth Med rash Govoha of Lakewood to convert
promissory note into 1,806,666 shares and 1,666,666 warrants (12)
10.25* Form of warrants issued in January 2004 to previous holders of warrants
issued in conjunction with Secured Convertible Notes for an aggregate
of 6,032,150 shares (12)
10.26** Form of warrants issued in April 2004 to previous holders of warrants
issued
21.1 Subsidiaries of our company:
Unity Wireless Systems Corporation (British Columbia)
321373 B.C. Ltd. (British Columbia)
23.1 Consent of KPMG, LLP**
23.2 Consent of Oscar D. Folger Law Offices (included in Exhibit 5.1)
----------
* Previously filed
** Filed herewith
(1) Incorporated by reference to the company's Form SB-2 filed with the
Securities and Exchange Commission on October 4, 2000.
(2) Filed herewith.
(3) Incorporated by reference to the company's Form 10-KSB filed with the
Securities and Exchange Commission on April 2, 2001.
(4) Incorporated by reference to the company's Form 8-K filed with the
Securities and Exchange Commission on October 23, 2000.
(5) Incorporated by reference to the company's Form 8-K filed with the
Securities and Exchange Commission on December 4, 2000.
(6) Incorporated by reference to the company's Form 8-K filed with the
Securities and Exchange Commission on January 16, 2001.
(7) Incorporated by references to the company's Form SB-2A filed with the
Securities and Exchange Commission on May 3, 2001.
(8) Incorporated by reference to our Form 10-KSB filed with the Securities and
Exchange Commission on April 3, 2003.
60
(9) Incorporated by reference to our Form SB-2 filed with the Securities and
Exchange Commission on May 2, 2003.
(10) Incorporated by reference to our Form 10-QSB filed with the Securities and
Exchange Commission on August 14, 2003.
(11) Incorporated by reference to our Form 10-QSB filed with the Securities and
Exchange Commission on Nov 14, 2003.
(12) Incorporated by reference to our Form 10-KSB filed with the Securities and
Exchange Commission on March 29, 2004.
UNDERTAKINGS
The undersigned company hereby undertakes that it will:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include:
(a) any prospectus required by Section 10(a)(3) of the Securities Act;
(b) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(c) include any additional or changed material information with respect to
the plan of distribution not previously disclosed in the registration
statement;
(2) For the purpose of determining any liability under the Securities Act, each
of the post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) Remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Unity
Wireless pursuant to the foregoing provisions, or otherwise, Unity Wireless has
been advised that in the opinion of the Commission that type of indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against said
liabilities (other than the payment by Unity Wireless of expenses incurred or
paid by a director, officer or controlling person of Unity Wireless in the
successful defense of any action, suit or proceeding) is asserted by the
director, officer or controlling person in connection with the securities being
registered, Unity Wireless will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of the issue.
61
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of Vancouver, British
Columbia on April 22, 2004.
UNITY WIRELESS CORPORATION
/s/ Ilan Kenig
-----------------------------------------------------
By: Ilan Kenig, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Dallas Pretty
-----------------------------------------------------
By: Dallas Pretty, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates stated.
SIGNATURES
/s/ Ilan Kenig
-----------------------------------------------------
Ilan Kenig, President, Chief Executive Officer and
Director (Principal Executive Officer)
May 12, 2004
/s/ Myer Bentob
-----------------------------------------------------
Myer Bentob, Director and Executive Chairman of the
Board of Directors
May 12, 2004
/s/ Andrew Chamberlain
-----------------------------------------------------
Andrew Chamberlain, Director and Corporate Secretary
May 12, 2004
/s/ Ken Maddison
-----------------------------------------------------
Ken Maddison, Director
May 12, 2004
/s/ Doron Nevo
-----------------------------------------------------
Doron Nevo, Director
May 12, 2004
/s/ Robert W. Singer
-----------------------------------------------------
Robert W. Singer, Director
May 12, 2004
62