Item 2. Management's Discussion and Analysis or Plan of Operation

The following discussion of the financial condition, changes in financial condition, and results of operations of Unity Wireless Corporation should be read in conjunction with our most recent financial statements and notes appearing: (1) in this Form 10-QSB; and (2) the Form 10-KSB for the year ended December 31, 2007 filed on May 15, 2008.

The financial statements have been prepared on the going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. Operations to date have been primarily financed by borrowing and equity transactions. Our future operations are dependent upon the identification and successful completion of additional long-term or permanent equity financing, the continued support of creditors and stockholders, and, ultimately, the achievement of profitable operations. There can be no assurances that we will be successful. If we are not, we will be required to reduce operations or liquidate assets. We will continue to evaluate our projected expenditures relative to our available cash and to seek additional means of financing in order to satisfy our working capital and other cash requirements. The auditors' report on the audited consolidated financial statements for the fiscal year ended December 31, 2007 contained in the 10-KSB filed on May 15, 2008, includes an explanatory paragraph that states that as we have suffered recurring losses from operations, substantial doubt exists about our ability to continue as a going concern. The audited consolidated financial statements or the interim quarterly unaudited consolidated financial statements included with this quarterly report do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we are unable to continue as a going concern.

Forward-Looking Statements

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly 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 "common shares" refer to the common shares in our capital stock.

As used in this quarterly report, the terms "we", "us", "our", and "Unity" mean Unity Wireless Corporation, unless otherwise indicated.

Results of Operations

Three-month period ended March 31, 2008 and 2007:

Sales and Cost of Goods Sold

Sales for the three-month period ended March 31, 2008 were $1,251,000, a decrease of 42.4% or $920,795, from $2,171,795 for the three-month period ended March 31, 2007. The decrease in sales is primarily a result of temporary slow down in business in India, along with closing the facilities in China and preparations for manufacturing in India.

Cost of goods sold during the three-month period ended March 31, 2008 was $1,487,000 resulting in a gross loss of $236,000, compared to cost of goods sold of $1,532,239 for the three-month period ended March 31, 2007 resulting in a gross margin of $639,556 or 29.45% of sales.

The decrease in gross margin is largely attributed to:

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Decrease in Inventory due to write off of the inventory in China.

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Closing of our manufacturing site in China caused short term increase in cost, as procurement is in small quantities until we complete setting up the manufacturing site in India;

Operating Expenses

Research and Development

Research and development expenses for the three-month period ended March 31, 2008 were $563,786, a decrease of $ 179,939 or 24.2% from $743,725 for the three-month period ended March 31, 2007. This decrease was primarily the result of the restructuring of the company, following the acquisitions in 2006.

Sales and Marketing

With the additional two new major product lines, and entering into new major markets such as India, Russia, and South East Asia, through the 2006 acquisition processes, our sales and marketing expenses for the three-month period ended March 31, 2008 were $126,000, a decrease of $393,756 or 75.6% from $519,756 for the three-month period ended March 31, 2007. This decrease was primarily the result of the restructuring of the company which allowed us to reduce the sales personnel headcount.

Depreciation and Amortization

Depreciation and amortization expenses for the three-month period ended March 31, 2008 were $34,065, a decrease of $834,621, from $868,686 for the three-month period ended March 31, 2007. This decrease was primarily the result of the write off of the intangible assets, at December 31, 2007, recorded relating to the acquired companies in 2006.

Exchange Loss

Exchange loss for the three-month period ended March 31, 2008 was $147,808, an increase of $144,093, from $3,715 for the three-month period ended March 31, 2007 due to fluctuations in the currency exchange rate between the U.S, Israel and Canada.

Interest Expense

Interest expense for the three-month period ended March 31, 2008 increased by $254,447 to $491,345 from $236,898 for the three-month period ended March 31, 2007. This increase was primarily the result of the increase in interest expense related to the increased use of line of credits.

General and Administrative

General and administrative expenses for the three-month period ended March 31, 2008 slightly increased to $535,254, an increase of $2,462, from $532,792 for the three-month period ended March 31, 2007.

Share compensation expense

Celletra's share compensation expenses were $112,500 for the period ended of March 31, 2007. At the request of the Celletra's former shareholders, 5% of the total consideration paid for the company, or 4,500 Preferred Shares, were issued to a trust controlled by the selling shareholders. The trust was instructed to issue the shares to current and former employees of Celletra if at any time within one year after the closing date, the price per share of the Company's common stock was equal to or exceeded $0.20 for a period of seven consecutive days. If this target share price was met, the shares were to be distributed.
If this milestone was not achieved the shares would be returned back to the selling shareholders of Celletra. This milestone was not achieved and, as such, the shares were returned back to the selling shareholders of Celletra. These employees were not shareholders of Celletra. As a result of the shares issued to the Celletra selling shareholders, those selling shareholders became significant (ie: holding greater than 10%) shareholders of the Company. In accordance with FAS 123(R), the Company has calculated the fair value of compensation relating to these shares that may be issued to current and former employees, to be $450,000 and amortized the amount on a straight line basis over one year. The full amount has been amortized as of December 31, 2007.

Other Expenses

Accretion of Interest

Accretion of interest for the three-month period ended March 31, 2008 was nil, compared to $114,093 for the three-month period ended March 31, 2007. As at December 31, 2007 all interest had been accreted.

Loss for the Quarter Ended March 31, 2008

Loss for the three-month period ended March 31, 2008 decreased by 14.3% or to $2,177,278 from $2,555,307 for the three-month period ended March 31, 2007.

Liquidity and Capital Resources

Since our inception, we have been dependent on investment capital and debt financing as our primary sources of liquidity. We had an accumulated deficit at March 31, 2008 of $72,223,880. During the three-month period ended March 31, 2008, we incurred a net loss of $2,177,278.

During the three-month period ended March 31, 2008, our cash position was decreased to $128,916. This decrease was primarily due to the repayment made to the trade payables and the short-term loan.

During the three-month period ended March 31, 2008, we did not purchase any equipment.

Other than leases for premises, leased vehicles and equipment commitments for an aggregate of $340,000 through 2010, we have no material commitments outstanding at March 31, 2008.

Our capital requirements may increase in light of our current strategy to expand our customer base and to develop new products and technologies. Our operations to date have been primarily financed by sales of our equity securities and debt financing, and, the company's assets are pledged to secure convertible notes that we issued in August 2004, February 2005, March 2005, February 2006 and December 2006. For any additional financing that may be required in the near term, we may be required to obtain the consent of certain of our investors prior to the issuance of our common stock or common stock equivalents and prior to entering into an agreement to assume certain liabilities.

While convertible notes and warrant purchase Agreements dated August 31, 2004, February 11, 2005, March 24, 2005, February 28, 2006 and December 13, 2006 are outstanding, we cannot declare dividends on our common shares. As of March 31, 2008, we had working deficit of $22,135,395, our operations presently have net cash outflow of $381,520. Our ability to continue as a going concern may be dependent upon one or more factors, that may include: our ability obtaining further financing; an increased rate of market acceptance of our current products and any new product offerings that we may introduce; the continuing successful development of our products and related technologies; and achieving a profitable level of operations Moving forward, although the issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders, obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitment. Our Auditors' report on our 2007 consolidated financial statements includes an additional explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Inflation

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.