UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ________to____________
Commission file number 0-22904
PARKERVISION, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2971472
(State or other jurisdiction of I.R.S. Employer ID No.
incorporation or organization)
8493 Baymeadows Way
Jacksonville, Florida 32256
(904) 737-1367
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
Indicate by check mark whether the registrant is an accelerated filer (as
defined by rule 12b-2 of the Exchange Act). Yes X No __.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ___ No ___.
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 5, 2004, 18,006,324 shares of the Issuer's Common Stock, $.01 par
value, were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
2004 December 31,
ASSETS (unaudited) 2003
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $18,232,688 $17,467,875
Short-term investments 2,158,627 3,008,427
Accounts receivable, net of allowance for doubtful
accounts of $107,025 at June 30, 2004 and $64,159 at
December 31, 2003 794,565 988,849
Interest and other receivables 2,211,274 54,407
Inventories, net 2,202,686 2,476,985
Prepaid expenses and other 1,712,799 2,312,385
----------- -----------
Total current assets 27,312,639 26,308,928
PROPERTY AND EQUIPMENT, net 3,755,681 4,860,261
INTANGIBLE ASSETS AND OTHER, net 10,397,966 11,313,621
----------- -----------
Total assets $41,466,286 $42,482,810
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
2004 December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 2003
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 1,338,647 $ 693,820
Accrued expenses:
Salaries and wages 391,016 592,369
Warranty reserves 1,768 199,084
Professional fees 54,900 143,893
Other accrued expenses 147,565 228,057
Deferred revenue 58,151 1,226,929
------------- -------------
Total current liabilities 1,992,047 3,084,152
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6 and 8)
------------- -------------
Total liabilities 1,992,047 3,084,152
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 18,006,324 and 17,959,504 shares
issued and outstanding at June 30, 2004 and
December 31, 2003, respectively 180,063 179,595
Warrants outstanding 16,807,505 16,807,505
Additional paid-in capital 118,254,405 118,048,964
Accumulated other comprehensive income 5,395 31,746
Accumulated deficit (95,773,129) (95,669,152)
------------- -------------
Total shareholders' equity 39,474,239 39,398,658
------------- -------------
Total liabilities and shareholders' equity $ 41,466,286 $ 42,482,810
============= =============
The accompanying notes are an integral part of these financial statements.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Product revenue $ 101,304 $ 0 $ 169,498 $ 0
Royalty revenue 0 0 250,000 0
------------ ------------ ------------ ------------
Net revenues 101,304 0 419,498 0
------------ ------------ ------------ ------------
Cost of goods sold 81,209 0 129,293 0
------------ ------------ ------------ ------------
Gross margin 20,095 0 290,205 0
------------ ------------ ------------ ------------
Research and development expenses 2,399,076 3,067,429 5,375,743 6,893,313
Marketing and selling expenses 453,506 178,712 738,267 345,628
General and administrative expenses 1,135,148 1,130,692 2,169,729 2,052,571
------------ ------------ ------------ ------------
Total operating expenses 3,987,730 4,376,833 8,283,739 9,291,512
------------ ------------ ------------ ------------
Interest and other income 46,572 121,546 99,848 302,948
------------ ------------ ------------ ------------
Loss from continuing operations (3,921,063) (4,255,287) (7,893,686) (8,988,564)
Net gain (loss) from discontinued operations
(including gain on the disposal of
$11,209,226 in 2004) 9,179,347 (793,831) 7,789,709 (1,618,647)
------------ ------------ ------------ ------------
Net income (loss) 5,258,284 (5,049,118) (103,977) (10,607,211)
Unrealized loss on securities (25,317) (44,746) (26,351) (163,249)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 5,232,967 $ (5,093,864) $ (130,328) $(10,770,460)
============ ============ ============ ============
Basic and diluted net loss per common share
Continuing operations $ (0.22) $ (0.28) $ (0.44) $ (0.61)
Discontinued operations $ 0.51 $ (0.05) $ 0.43 $ (0.11)
------------ ------------ ------------ ------------
Total $ 0.29 $ (0.33) $ (0.01) $ (0.72)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,258,284 $ (5,049,118) $ (103,977) $(10,607,211)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 742,129 708,573 1,538,246 1,451,938
Amortization of discounts on investments 10,063 46,585 23,449 91,423
Provision for obsolete inventories 20,000 75,000 95,000 150,000
Stock compensation 405,909 200,000 605,909 593,096
Gain on sale of discontinued operations (11,209,226) 0 (11,209,226) 0
Gain on sale of investments 0 (64,083) 0 (169,606)
Loss on disposal of equipment 640 0 1,275 0
Changes in operating assets and liabilities, net of the
effects of the sale of the video business unit:
Accounts receivable, net 338,022 (199,132) 194,284 324,491
Inventories (1,559,721) 620,087 (2,140,332) 784,202
Prepaid, interest receivable and other assets (648,605) 386,530 (716,714) 507,119
Accounts payable and accrued expenses (1,386,578) (1,298,782) 279,584 (419,691)
Deferred revenue 249,349 113,181 48,593 41,681
------------ ------------ ------------ ------------
Total adjustments (13,038,018) 587,959 (11,279,932) 3,354,653
------------ ------------ ------------ ------------
Net cash used in operating activities (7,779,734) (4,461,159) (11,383,909) (7,252,558)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments available for sale 0 (1,787,338) 0 (4,810,403)
Proceeds from maturity/sale of investments 500,000 1,683,520 800,000 9,463,504
Proceeds from sale of video business unit assets 12,153,939 0 12,153,939 0
Purchases of property and equipment (199,210) (96,519) (422,627) (438,416)
Payments for patent costs (230,369) (449,625) (382,590) (682,552)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities 12,224,360 (649,962) 12,148,722 3,532,133
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 13,933 0 5,078,848
------------ ------------ ------------ ------------
Net cash provided by financing activities 0 13,933 0 5,078,848
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,444,626 (5,097,188) 764,813 1,358,423
CASH AND CASH EQUIVALENTS, beginning of period 13,788,062 7,542,644 17,467,875 1,087,033
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 18,232,688 $ 2,445,456 $ 18,232,688 $ 2,445,456
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of
ParkerVision, Inc. and subsidiary (the "Company", or "ParkerVision") have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. All normal and recurring adjustments
which, in the opinion of management, are necessary for a fair presentation
of the financial condition and results of operations have been included.
Operating results for the six-month period ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
These interim consolidated financial statements should be read in
conjunction with the Company's latest Annual Report on Form 10-K for the
year ended December 31, 2003. There have been no changes in accounting
policies from those stated in the Annual Report on Form 10-K for the year
ended December 31, 2003.
Consolidated Statements of Cash Flows. The Company paid no cash for income
taxes or interest for the three or six-month periods ended June 30, 2004
and 2003. On April 28, 2003 the Company issued restricted common stock,
valued at approximately $2,400,000, under the terms of the 2000
Performance Equity Plan as consideration for professional services. On May
14, 2004 the Company issued restricted common stock, valued at
approximately $206,000, under the terms of the 2000 Performance Equity
Plan to former employees as part of the severance package pertaining to
the discontinued operations of the video business unit (see Note 2).
Warranty Costs
For wireless products, the Company warrants against defects in workmanship
and materials for approximately one year. For PVTV systems, the Company
warranted against software bugs and defects in workmanship and material
for a period of ninety days from the site commissioning date. For camera
product and related accessories, the Company warranted against defects in
workmanship and materials for approximately one year. Estimated costs
related to warranties are accrued at the time of revenue recognition and
are included in cost of sales. The warranty obligations related to the
Company's PVTV and camera products were transferred to Thomson upon the
sale of the assets of the video business unit. (see Note 2)
A reconciliation of the changes in the aggregate product warranty
liability for the six months ended June 30, 2004 and the year ended
December 31, 2003 are as follows:
Warranty Reserve
Debit (Credit)
------------------------
June 30, December 31,
2004 2003
--------- ------------
Balance at the beginning of the period $(199,084) $(248,230)
Accruals for warranties issued during the period (12,355) (55,729)
Accruals related to pre-existing warranties (including changes
in estimates) 0 0
Settlements made (in cash or in kind) during the period 6,760 104,875
Reduction as a result of discontinued operations 202,911 0
----------------------
Balance at the end of the period $ (1,768) $(199,084)
======================
6
The Company offered extended service and support contracts on its PVTV
automated production systems. A reconciliation of the changes in the
aggregate deferred revenue from extended service contracts for the six
months ended June 30, 2004 and for the year ended December 31, 2003 are as
follows:
Deferred Revenue from Extended
Service Contracts
Debit (Credit)
------------------------
June 30, December 31,
2004 2003
------------------------
Balance at the beginning of the period $(561,584) $(383,704)
Accruals for contracts issued during the period (129,875) (737,617)
Revenue recognized during the period 236,428 559,737
Reduction as a result of discontinued operations 455,031 0
----------------------
Balance at the end of the period $ 0 $(561,584)
======================
Accounting for Stock Based Compensation. At June 30, 2004, the Company has
two stock-based employee compensation plans, which are accounted for under
the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
For employee stock option grants, no stock-based employee compensation
cost is reflected in the Consolidated Statements of Operations, as all
options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on the net loss and loss per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", as amended
by FASB Statement No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", to stock-based employee compensation.
Six months ended
----------------------------
June 30, June 30,
2004 2003
------------ ------------
Net loss, as reported $ (103,977) $(10,607,211)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (5,708,431) (4,038,929)
------------ ------------
Pro forma net loss $ (5,812,408) $(14,646,140)
============ ============
Basic net loss per share: As reported $ (.01) $ (.72)
============ ============
Pro forma $ (.32) $ (.95)
============ ============
7
2. DISCONTINUED OPERATIONS
On February 25, 2004, ParkerVision, entered into an asset purchase
agreement and various ancillary agreements ("Asset Agreement") with
Thomson Broadcast & Media Solutions, Inc. ("Thomson") and Thomson
Licensing, SA ("Thomson Licensing" and, together with Thomson, the
"Purchasers") for the sale of all the assets of the Company's video
business unit, with certain limited exceptions. On May 14, 2004, after
receipt of shareholder approval of the transaction and satisfaction of the
conditions to closing, the Company, Thomson and Thomson Licensing
consummated the sale.
Under the Asset Agreement, the Company sold the business and related
assets of its video division, excluding certain contracts, accounts
receivable and other assets. Generally, the assets sold were all those
used in connection with and relating to the PVTVand CameraMan products and
services, including patents, patent applications, tradenames, trademarks
and other intellectual property, inventory, specified design, development
and manufacturing equipment, and obligations under outstanding contracts
for products and services. Thomson extended offers to and received
acceptances from thirty-one of the persons employed in connection with the
video division who transferred employment effective May 14, 2004. The net
book value of assets and liabilities sold to Purchasers include the
following:
Patents, net $ 681,444
Inventories, net 1,702,797
Furniture and equipment, net 584,059
Prepaids and other deposits 37,364
Deferred revenue (1,217,371)
Warranty reserves (202,911)
-----------
$ 1,585,382
===========
The purchase price for the assets was $12,500,000, subject to adjustment
upon verification of the actual fair value of certain assets transferred,
less certain liabilities assumed (the "Purchase Price Adjustment"). A
portion of the purchase price equal to $1,250,000 will be held by the
Purchasers until May 14, 2005, to indemnify the Purchasers against
breaches of the Company's continuing obligations and its representations
and warranties under the Asset Agreement. This amount will earn interest
until paid. A Purchase Price Adjustment, in the amount of approximately
$900,000 was paid by Thomson in July 2004 representing the net book value
of assets and liabilities purchased, excluding intangible assets.
The Company has calculated the tax effect for the discontinued operations.
This resulted in an increase in deferred tax assets. However, based on
management's assessment, the increase in deferred tax assets was offset by
a corresponding increase in the valuation allowance due to the uncertainty
related to realization of these assets through future taxable income.
The Company has agreed not to compete with the business of the video
division for five years after the closing date. The Company also agreed
not to seek legal recourse against the Purchasers in respect of its
intellectual property that was transferred or should have been transferred
if used in connection with the video operations.
For a period of up to six months after the closing, the Company is
obligated to assist the Purchasers in transitioning the video business
into Thomson's operations. This will include providing the Purchasers'
employees with office space, training in respect of the business and the
products and
8
services, contract manufacturing, and certain general administrative
functions. The Company will be reimbursed at cost and at cost-plus
depending on the service and the length of time for which the service is
provided. The Company has entered into a sublease with Thomson for a
portion of the office space it currently leases.
The Purchasers have been granted a license to use the "ParkerVision" name
for a limited time in connection with the transition of the video business
to the integrated operations of the Purchasers.
The Asset Agreement provides that each party will indemnify the other for
damages incurred as a result of the breach of their respective
representations and warranties and failure to observe their covenants. In
general, the representations and warranties will survive for 18 months
after the closing and will not be affected by any investigation by the
other party. Each party is obligated to indemnify the other up to
$4,000,000, once a threshold of $150,000 in damages is achieved.
Additionally, the Company must indemnify the Purchasers against
intellectual property claims for an unlimited period of time, without any
minimum threshold, and with a separate maximum of $5,000,000. Certain
other claims by the Purchasers will not be limited as to time or amount.
The Purchasers will be permitted to offset their claims against the amount
held back on the purchase price and other amounts due the Company.
SFAS No. 144 requires the operations of the video business unit to be
classified as discontinued operations when the operations and cash flows
of the business unit have been eliminated from ongoing operations. The
prior years' operating activities for the video business unit have also
been reclassified to "Loss from discontinued operations" in the
accompanying Statements of Operations.
Discontinued operations for the three and six month periods below include
the following components:
Three Month Period Ended Six Month Period Ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
---------------------------- ----------------------------
Net revenues $ 349,694 $ 2,390,237 $ 1,507,664 $ 4,150,407
Cost of goods sold and
operating expenses (2,379,573) (3,184,068) (4,927,181) (5,769,054)
---------------------------- ----------------------------
Net loss from operations (2,029,879) (793,831) (3,419,517) (1,618,647)
Gain on sale of assets 11,209,226 0 11,209,226 0
---------------------------- ----------------------------
Gain (loss) from
discontinued operations $ 9,179,347 $ (793,831) $ 7,789,709 $ (1,618,647)
============================ ============================
3. LOSS PER SHARE
Basic loss per share is determined based on the weighted average number of
common shares outstanding during each period. Diluted loss per share is the
same as basic loss per share as all common share equivalents are excluded
from the calculation, as their effect is anti-dilutive. The weighted
average number of common shares outstanding for the three-month periods
ended June 30, 2004 and 2003 is 17,983,686 and 15,418,752, respectively.
The weighted average number of common shares outstanding for the six-month
periods ended June 30, 2004 and 2003 is 17,971,662 and 14,751,571,
respectively. The total number of options and warrants to purchase
7,226,127 and 6,763,845 shares of common stock that were outstanding at
June 30, 2004 and 2003, respectively, were excluded from the computation of
diluted earnings per share as the effect of these options and warrants
would have been anti-dilutive.
9
4. INVENTORIES:
Inventories consist of the following:
June 30, December 31,
2004 2003
----------- -----------
Purchased materials $ 1,429,772 $ 1,869,542
Work in process 756,694 185,041
Finished goods 36,220 404,765
Spare parts and demonstration inventory 0 1,207,097
----------- -----------
2,222,686 3,666,445
Less allowance for inventory obsolescence (20,000) (1,189,460)
----------- -----------
$ 2,202,686 $ 2,476,985
=========== ===========
5. OTHER ASSETS:
Other assets consists of the following:
June 30, 2004
--------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 9,757,083 $ (2,210,758) $ 7,546,325
Prepaid services 1,600,000 (1,000,000) 600,000
Prepaid licensing fees 2,405,000 (700,417) 1,704,583
Deposits and other 547,058 0 547,058
------------ ------------ ------------
$ 14,309,141 $ (3,911,175) $ 10,397,966
============ ============ ============
December 31, 2003
--------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,787,826 $ (2,638,862) $ 8,148,964
Prepaid services 1,600,000 (600,000) 1,000,000
Prepaid licensing fees 2,030,000 (415,333) 1,614,667
Other intangible assets 364,830 (364,830) 0
Deposits and other 549,990 0 549,990
------------ ------------ ------------
$ 15,332,646 $ (4,019,025) $ 11,313,621
============ ============ ============
6. STOCK OPTIONS
For the three months ended June 30, 2004 the Company granted stock options
under the 2000 Performance Equity Plan (the "2000 Plan") in connection
with hiring and retention of employees to purchase an aggregate of 85,000
shares of its common stock at exercise prices ranging from $5.70 to $6.00
per share. The Company granted a stock option under the 2000 Plan to an
officer of the Company to purchase 150,000 shares of its common stock at
an exercise price of $5.70. Both the employee and officer options granted
vest ratably over five years and expire five years from the date they
become vested. The Company also granted a stock option under the 2000 Plan
to a director of
10
the Company to purchase 40,000 shares of its common stock at an exercise
price of $5.40 per share. This option vests ratably over two years and
expires ten years from the date it becomes vested.
As of June 30, 2004 options to purchase 1,289,470 shares of common stock
were available for future grants under the 2000 Plan.
7. STOCK AUTHORIZATION AND ISSUANCE
Common Stock
On May 14, 2004 the Company issued 46,820 shares of restricted common
stock, valued at approximately $206,000, or approximately $4.40 per share,
under the terms of the 2000 Performance Equity Plan to former employees as
part of the severance package pertaining to the discontinued operations of
the video business unit. The shares are fully vested and non-forfeitable
and have been charged to expense as part of discontinued operations.
8. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on its financial
position, results of operations or liquidity.
9. SUBSEQUENT EVENT
On July 9, 2004, the Company entered into an asset purchase agreement with
Consumerware Incorporated for the purchase of all the assets relating to
the Aero 2000 cordless telephone. The purchase was concluded on July 15,
2004. ParkerVision acquired all the intellectual property including
designs, schematics and software related to the cordless phone as well as
high volume production tooling and certain component inventory. The
purchase price was approximately $1,050,000. A portion of the purchase
price, equal to $100,000 is being held in escrow as security for the
indemnification obligations of Consumerware. This purchase price holdback
will be released in part on November 14, 2004 with the balance scheduled
for release on February 14, 2005.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result",
"management expects" or "Company expects", "will continue", "is anticipated",
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on such
forward-looking statements, each of which speaks only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected, including the timely development and acceptance of new
products, sources of supply and concentration of customers. The Company has no
obligation to publicly release the results of any revisions, which may be made
to any forward-looking statements to reflect, anticipated events or
circumstances occurring after the date of such statements.
11
Results of Operations for Each of the Three and Six-Month Periods Ended June 30,
2004 and 2003
Discontinued Operations
On February 25, 2004, ParkerVision entered into an asset purchase agreement and
various ancillary agreements ("Asset Agreement") with Thomson Broadcast & Media
Solutions, Inc. ("Thomson") and Thomson Licensing, SA ("Thomson Licensing" and,
together with Thomson, the "Purchasers") for the sale of all the assets of the
Company's video business unit. On May 14, 2004, after receipt of shareholder
approval of the transaction and satisfaction of the conditions to closing, the
Company, Thomson and Thomson Licensing consummated the sale.
SFAS No. 144 requires the operations of the video business unit to be classified
as net gain (loss) from discontinued operations when the operations and cash
flows of the business unit have been eliminated from ongoing operations. The
prior years' operating activities for the video business unit have also been
reclassified to "Net gain (loss) from discontinued operations" in the
accompanying Statements of Operations.
Net gain (loss) from discontinued operations for the three and six month periods
below include the following components:
Three Month Period Ended Six Month Period Ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
---------------------------- ----------------------------
Net revenues $ 349,694 $ 2,390,237 $ 1,507,664 $ 4,150,407
Cost of goods sold and
operating expenses (2,379,573) (3,184,068) (4,927,181) (5,769,054)
---------------------------- ----------------------------
Net loss from operations (2,029,879) (793,831) (3,419,517) (1,618,647)
Gain on sale of assets 11,209,226 0 11,209,226 0
---------------------------- ----------------------------
Gain (loss) from
discontinued operations $ 9,179,347 $ (793,831) $ 7,789,709 $ (1,618,647)
============================ ============================
Continuing Operations
Revenues
As a result of the sale of the video business unit assets on May 14, 2004,
operations of the video division have been included in discontinued operations.
Prior to the sale, essentially all of the Company's revenues were generated by
its video division.
Revenues for the three and six months ended June 30, 2004 were $101,304 and
$419,498, respectively. The Company had no revenues in the comparable periods in
2003. The Company initiated sales of its wireless products in the fourth quarter
of 2003 through direct web sales and a retail relationship with TigerDirect.com,
an e-retailer that specializes in electronic merchandise. In the first quarter
of 2004, the Company recognized a $250,000 one-time previously deferred royalty
payment upon termination of a licensing agreement.
For sales through TigerDirect.com, the Company recognizes revenue on a
sell-through basis, that is, when the product is sold through to the end-user.
This is determined based on information received from the retailer. In addition,
the Company currently offers a 30-day money back guarantee on its wireless
products. Since the Company does not have sufficient history with sales of this
nature to establish an estimate of expected returns, it has deferred 100% of
wireless product sales to the end-user until expiration of the 30-day guarantee
period. At June 30, 2004, the Company had deferred revenue from sales of
wireless products of approximately $58,000.
12
The Company has entered into outside public relations and manufacturer
representative arrangements for the introduction of the Company's products to
retail storefronts and anticipates securing initial contracts for distribution
of its products through retail outlets in the third quarter of 2004. The Company
is also initiating a value-added reseller program for commercial distribution of
its products.
The Company anticipates growth in revenues and deferred revenues in the second
half of 2004 as distribution of its products expands through these additional
channels. While the Company strives for consistent revenue growth, there can be
no assurance that consistent revenue growth or profitability can be achieved.
The Company's ability to increase wireless product revenues will largely depend
upon the rate at which the Company is able to secure additional distribution
channels, increase brand recognition and customer demand for its products and
increase production volumes sufficiently to meet such demand. There can be no
assurance that the Company will be able to increase its current level of
revenues on a quarterly or annual basis in the future.
Gross Margin
For the three and six month periods ended June 30, 2004 gross margins based on
aggregate revenues as a percentage of sales were 19.8% and 69.2%, respectively.
The gross margins for products and royalties for the three and six-month periods
were as follows:
June 30, 2004 June 30, 2003
--------------------- -------------
$ % $ %
-------- ------- ------ -----
Products
Three month period $ 20,095 19.8% N/A N/A
Six month period $ 40,205 23.7% N/A N/A
Royalties
Three month period 0 0 N/A N/A
Six month period $250,000 100.0% N/A N/A
The Company's product margins in 2004 are reflective of significant excess
capacity costs and low volume component costs. The fluctuations in margin
between periods in 2004 is due to shared absorption of excess capacity costs in
the first quarter of 2004 between the Company's wireless and video divisions. As
production volume increases in the second half of 2004 to meet retail and other
channel demand, management anticipates significant margin improvement resulting
from higher volume price breaks on component purchases as well as improved
absorption of capacity costs. The margin recognized on royalty revenues was due
to the recognition of a one-time, previously deferred prepaid royalty in
connection with the termination of a licensing agreement.
Gross margin may be negatively impacted in future periods by many factors,
including fluctuating component costs and start-up costs associated with new
product introductions.
Research and Development Expenses
The Company's research and development expenses for the three-month period ended
June 30, 2004 were $2,399,076 as compared to $3,067,429 for the same period in
2003. For the six-month period ended June 30, 2004, the Company's research and
development expenses were $5,375,743 as compared to $6,893,313 for the same
period in 2003. The decreases for the three and six month periods of
approximately $668,400 and $1,517,600, respectively, were primarily due to the
Company's ability to obtain, through third parties, certain technologies
previously being developed internally by the Company.
13
This resulted in a reduction in wireless engineering staff late in the third
quarter of 2003, as well as a reduction in certain third-party development fees.
In addition, the Company's wireless prototype foundry expenses decreased from
the first quarter of 2003 to the same period in 2004, largely due to timing of
prototype foundry runs and related foundry costs.
Marketing and Selling Expenses
Marketing and selling expenses for the three-month period ended June 30, 2004
were $453,506 as compared to $178,712 for the same period in 2003, and for the
six month period ended June 30, 2004 were $738,267 compared to $345,628 for the
same period in 2003. The increases for the three and six month period of
approximately $274,800 and $392,600 were primarily due to increases in
advertising expenses and outside consulting fees to promote the Company's
wireless products and also the addition of marketing and customer support
personnel to support such products.
General and Administrative Expenses
General and administrative expenses for the three month period ended June 30,
2004 were $1,135,148 as compared to $1,130,692 for the same period in 2003 and
for the six month period ended June 30, 2004 were $2,169,729 compared to
$2,052,571 for the same period in 2003. The increases for the three and six
month periods of approximately $4,500 and $117,200 were primarily due to
increases in corporate outside professional fees and personnel costs, offset
somewhat by decreases in corporate insurance costs.
Interest and Other Income
Interest and other income consists of interest earned on the Company's
investments, and net gains recognized on the sale of investments. Interest and
other income for the three and six month periods ended June 30, 2004 was $46,572
and $99,848, respectively, as compared to $121,546 and $302,948 for the same
periods in 2003. The decreases of approximately $75,000 and $203,100 were
primarily due to the continued use of cash and investments to fund operations
and a decline in interest rates due to a change in the mix of the Company's
investment portfolio.
Loss and Loss per Share
The Company had net income of approximately $5,258,300 or $0.29 per common share
for the three-month period ended June 30, 2004 as compared to a net loss of
approximately $(5,049,100) or $(0.33) for the same period in 2003, representing
an increase in net income of approximately $10,307,400 or $0.62 per common
share. The net loss decreased from approximately $(10,607,200) or $(0.72) per
common share for the six month period ended June 30, 2003 to approximately
$(104,000) or $(0.01) per common share for the same period in 2004, representing
a decrease in the net loss of approximately $10,503,200 or $0.71 per common
share.
The increase in net income and decrease in net loss for the three and six month
periods is primarily due to the net gain on the sale of the video business unit
assets and decreased research and development expenses for the wireless business
unit.
The results of operations are as follows: (in thousands):
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
-------------------- --------------------
Loss from continuing $ (3,921) $ (4,255) $ (7,894) $ (8,988)
operations
Net gain (loss) from
discontinued operations 9,179 (794) 7,790 (1,619)
-------------------- --------------------
Net income (loss) $ 5,258 $ (5,049) $ (104) $(10,607)
==================== ====================
14
Liquidity and Capital Resources
At June 30, 2004, the Company had working capital of approximately $25.3 million
including approximately $20.4 million in cash, cash equivalents and short-term
investments. This represents an increase of approximately $2.1 million from
working capital of $23.2 million at December 31, 2003. This increase is due to
the proceeds from the sale of the video business in the second quarter of 2004,
offset by cash used to fund continuing operations.
The Company's future business plans call for continued investment in sales,
marketing and product development for its wireless products. The Company's
ability to increase wireless product revenues will largely depend upon the rate
at which the Company is able to secure additional distribution channels,
increase brand recognition and customer demand for its products and increase
production volumes sufficiently to meet such demand. Although management expects
increases in revenues from sales of its wireless products during 2004, the
Company does not anticipate that overall revenues for 2004 will be sufficient to
offset the expenses of its continued operations. Therefore, management expects
operating losses and negative cash flows from operations to continue in 2004 and
possibly beyond. The Company intends to utilize its working capital to fund its
future business plans. The Company also anticipates the use of operating lines
of credit or other traditional forms of financing to fund the inventory and
receivable growth expected during the latter half of 2004 and beyond. The
Company currently has no such financing in place. The Company believes it has
sufficient capital to fund its business plan for 2004 and beyond. The Company's
principal source of liquidity at June 30, 2004 consisted of approximately $20.4
million in cash, cash equivalents and short-term investments.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Not
Applicable
ITEM 4. Controls and Procedures.
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of June 30, 2004 was made under the supervision and with the
participation of the Company's management, including the chief executive officer
and chief financial officer. Based on that evaluation, they concluded that the
Company's disclosure controls and procedures are effective as of the end of the
period covered by this report to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. As of the end of the period covered by this report, there has been no
significant change in the Company's internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations or liquidity.
15
ITEM 2. Changes in Securities.
Sales of Unregistered Securities
Consideration received and Exemption If option, warrant or
description of underwriting or from convertible security,
Date of Title of Number other discounts to market price registration terms of exercise or
sale security sold afforded to purchasers claimed conversion
- ---------------------------------------------------------------------------------------------------------------------
4/1/04 to Options to 85,000 Option granted - no 4(2) Expire five years from
6/30/04 purchase consideration received by date vested, options
common stock Company until exercise vest ratably over five
granted to years at exercise prices
employees ranging from $5.70 to
$6.00 per share
6/11/04 Options to 40,000 Option granted - no 4(2) Expire ten years from
purchase consideration received by date vested, options
common stock Company until exercise vest ratably over two
granted to a years at an exercise
director price of $5.40 per share
5/14/04 Common Stock 46,820 $4.40 per share 4(2) N/A
ITEM 3. Defaults Upon Senior Securities. Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting on June 11, 2004. The shareholders elected
Messrs. Jeffrey Parker, Todd Parker, David Sorrells, William Hightower, Richard
Kashnow, William Sammons, Nam Suh, Papken der Torossian and John Metcalf as
directors. The following is a tabulation of votes cast for and against and
abstentions for each item submitted for approval:
Votes Cast
-------------------------------------
Name For Against Withheld
---------------------------------------------------------------------------------------
Jeffrey Parker 12,959,654 5,370 -0-
Todd Parker 12,959,654 5,370 -0-
David Sorrells 12,932,237 32,787 -0-
William Hightower 12,959,654 5,370 -0-
Richard Kashnow 12,932,237 32,787 -0-
William Sammons 12,932,237 32,787 -0-
Nam P. Suh 12,959,654 5,370 -0-
Papken der Torossian 12,932,237 32,787 -0-
John Metcalf 12,959,654 5,370 -0-
16
ITEM 5. Other Information. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
31.1 Section 302 Certification of Jeffery L. Parker, CEO
31.2 Section 302 Certification of Cynthia Poehlman, CFO
32.1 Section 906 Certification
99.1 Risk Factors
(b) Reports on Form 8-K.
1. Form 8-K, dated May 14, 2004. Item 2 - Acquisition or
Disposition of Assets. Report of ParkerVision, Inc. closing on
the asset purchase agreement and various ancillary agreements
with Thomson Broadcast & Media Solutions, Inc. and Thomson
Licensing, SA for the sale of certain designated assets of the
Company's video division.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ParkerVision, Inc.
Registrant
August 9, 2004 By: /s/Jeffrey L. Parker
--------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
August 9, 2004 By: /s/Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
18