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 SEPTEMBER 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 November 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
September 30,
2004 December 31,
ASSETS (unaudited) 2003
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $13,443,711 $17,467,875
Short-term investments 1,478,378 3,008,427
Accounts receivable, net of allowance for doubtful
accounts of $91,506 at September 30, 2004 and $64,159 at
December 31, 2003 920,465 988,849
Interest and other receivables 1,396,236 54,407
Inventories, net 4,250,065 2,476,985
Prepaid expenses and other 1,259,911 2,312,385
----------- -----------
Total current assets 22,748,766 26,308,928
PROPERTY AND EQUIPMENT, net 3,678,835 4,860,261
INTANGIBLE ASSETS AND OTHER, net 11,063,795 11,313,621
----------- -----------
Total assets $37,491,396 $42,482,810
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30,
2004 December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 2003
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 1,434,080 $ 693,820
Accrued expenses:
Salaries and wages 593,532 592,369
Warranty reserves 2,730 199,084
Professional fees 176,382 143,893
Other accrued expenses 357,292 228,057
Deferred revenue 543,136 1,226,929
------------- -------------
Total current liabilities 3,107,152 3,084,152
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6 and 8)
------------- -------------
Total liabilities 3,107,152 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 September 30, 2004 and December 31, 2003, respectively 180,063 179,595
Warrants outstanding 14,573,705 16,807,505
Additional paid-in capital 120,488,205 118,048,964
Accumulated other comprehensive income 3,719 31,746
Accumulated deficit (100,861,448) (95,669,152)
------------- -------------
Total shareholders' equity 34,384,244 39,398,658
------------- -------------
Total liabilities and shareholders' equity $ 37,491,396 $ 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 September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Product revenue $ 96,182 $ 0 $ 265,680 $
0
Royalty revenue 0 0 250,000 0
------------ ------------ ------------ ------------
Net revenues 96,182 0 515,680 0
Cost of goods sold 83,188 0 212,481 0
------------ ------------ ------------ ------------
Gross margin 12,994 0 303,199 0
------------ ------------ ------------ ------------
Research and development expenses 2,784,904 3,411,990 8,160,647 10,305,302
Marketing and selling expenses 622,253 290,793 1,360,520 636,421
General and administrative expenses 1,668,862 1,069,508 3,838,591 3,122,079
Loss on disposal of property and equipment 0 84,007 0 84,007
------------ ------------ ------------ ------------
Total operating expenses 5,076,019 4,856,298 13,359,758 14,147,809
------------ ------------ ------------ ------------
Interest and other income 56,013 64,089 155,861 367,037
------------ ------------ ------------ ------------
Loss from continuing operations (5,007,012) (4,792,209) (12,900,698) (13,780,772)
(Loss) gain from discontinued operations
(including gain on the disposal of
$11,156,177 in 2004) (81,307) (834,949) 7,708,402 (2,453,597)
------------ ------------ ------------ ------------
Net loss (5,088,319) (5,627,158) (5,192,296) (16,234,369)
Unrealized loss on securities (1,676) (57,392) (28,027) (220,641)
------------ ------------ ------------ ------------
Comprehensive loss $ (5,089,995) $ (5,684,550) $ (5,220,323) $(16,455,010)
============ ============ ============ ============
Basic and diluted net loss per common share
Continuing operations $ (0.28) $ (0.31) $ (0.72) $ (0.92)
Discontinued operations 0.00 (0.05) 0.43 (0.16)
------------ ------------ ------------ ------------
Total $ (0.28) $ (0.36) $ (0.29) $ (1.08)
============ ============ ============ ============
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 Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,088,319) $ (5,627,158) $ (5,192,296) $(16,234,369)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 766,914 700,074 2,305,160 2,152,012
Amortization of discounts on investments 8,573 39,843 32,022 131,266
Provision for obsolete inventories 45,365 75,000 140,365 225,000
Stock compensation 200,000 200,000 805,909 793,096
Loss (gain) on sale of discontinued operations 53,049 0 (11,156,177) 0
Gain on sale of investments 0 (31,876) 0 (201,482)
Loss on disposal of equipment 0 84,007 0 84,007
Changes in operating assets and liabilities,
net of the effects of the sale of the
video business unit:
Accounts receivable, net (125,900) 5,364 68,384 329,855
Inventories (2,092,744) (446,045) (4,233,076) 338,157
Prepaid, interest receivable and other assets 322,133 458,444 (394,581) 965,563
Accounts payable and accrued expenses 630,120 217,425 909,704 (202,266)
Deferred revenue 484,985 (8,919) 533,578 32,762
------------ ------------ ------------ ------------
Total adjustments 292,495 1,293,317 (10,988,712) 4,647,970
------------ ------------ ------------ ------------
Net cash used in operating activities (4,795,824) (4,333,841) (16,181,008) (11,586,399)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments available for sale 0 (792,657) 0 (5,603,060)
Proceeds from maturity/sale of investments 670,000 3,098,805 1,470,000 12,562,309
Proceeds from sale of video business unit assets and
other property and equipment 30,887 437,855 12,184,826 437,855
Collections of purchase price receivable 903,939 0 903,939 0
Purchases of property and equipment (439,283) (411,154) (860,635) (849,570)
Payments for patent costs and other intangible assets (1,158,696) (225,459) (1,541,286) (908,011)
------------ ------------ ------------ ------------
Net cash (used in) provided by investing activities 6,847 2,107,390 12,156,844 5,639,523
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 4,870 0 5,083,718
------------ ------------ ------------ ------------
Net cash provided by financing activities 0 4,870 0 5,083,718
------------ ------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(4,788,977) (2,221,581) (4,024,164) (863,158)
CASH AND CASH EQUIVALENTS, beginning of period 18,232,688 2,445,456 17,467,875 1,087,033
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 13,443,711 $ 223,875 $ 13,443,711 $ 223,875
============ ============ ============ ============
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 nine-month period ended September 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 nine-month periods ended September 30,
2004 and 2003. On April 28, 2003 the Company issued 250,000 shares of
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 468 shares of
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). Unrealized losses on investments for the three
and nine month periods ended September 30, 2004 were $1,676 and $28,027,
respectively. Unrealized loses for the three and nine-month periods ended
September 30, 2003 were $57,392 and $220,641, respectively. Warrants
previously issued by the Company in conjunction with a private placement
in the amount of $2,233,800 expired and were reclassified to additional
paid in capital.
WARRANTY COSTS
For wireless products, the Company warrants 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).
6
A reconciliation of the changes in the aggregate product warranty
liability for the nine months ended September 30, 2004 and the year ended
December 31, 2003 are as follows:
Warranty Reserve
Debit (Credit)
-------------------------------------
Three months ended Nine months ended
September 30, September 30,
2004 2004
--------- ---------
Balance at the beginning of the period $ (1,768) $(199,084)
Accruals for warranties issued during the period (962) (13,317)
Accruals related to pre-existing warranties (including
changes in estimates) 0 0
Settlements made (in cash or in kind) during the period
0 6,760
Reduction as a result of discontinued operations 0 202,911
--------- ---------
Balance at the end of the period $ (2,730) $ (2,730)
========= =========
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 nine
months ended September 30, 2004 and for the year ended December 31, 2003
are as follows:
Deferred Revenue from
Extended Service Contracts
Debit (Credit)
---------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2004 2004
--------- ---------
Balance at the beginning of the period $ 0 $(561,584)
Accruals for contracts issued during the period 0 (129,875)
Revenue recognized during the period 0 236,428
Reduction as a result of discontinued operations 0 455,031
--------- ---------
Balance at the end of the period $ 0 $ 0
========= =========
REVENUE RECOGNITION.
The Company makes sales direct through its own website or through retail
distribution channels. Retail distributors are given business terms that
allow for the return of unsold inventory. In addition, the Company
currently offers a 30-day money back guarantee on its wireless products.
With regard to sales through a distribution channel where the right to
return unsold product exists, the Company recognizes revenue on a
sell-through method utilizing information provided by the distribution
channel. In addition, 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 within the 30-day guarantee
period.
ACCOUNTING FOR STOCK-BASED COMPENSATION. At September 30, 2004, the
Company has two stock-based employee compensation plans, which are
accounted for under the intrinsic value method. 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. Stock-based compensation to
non-employees is accounted for under the fair value method.
7
The following table illustrates the effect on the net loss and loss per
share if the Company had applied the fair value method, to stock-based
employee compensation.
Three months ended Nine months ended
------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
----------- ------------ ------------ ------------
Net loss, as reported $(5,088,319) $ (5,627,158) $ (5,192,296) $(16,234,369)
Deduct: Total stock-based
employee compensation expense
determined under fair value (2,767,828) (6,849,077) (8,476,259) (10,888,006)
method, net of related tax effects
----------- ------------ ------------ ------------
Pro forma net loss (7,856,147) (12,476,235) (13,668,555) $(27,122,375)
=========== ============ ============ ============
Basic and diluted net loss per
share: As reported $ (.28) $ (.36) $ (.29) $ (1.08)
=========== ============ ============ ============
Pro forma $ (.80) $ (.44) $ (.76) $ (1.81)
=========== ============ ============ ============
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 carrying value of certain assets
transferred, less certain liabilities assumed (the "Purchase Price
Adjustment"). A portion of the purchase price equal to $1,250,000 which is
included in interest and other receivables on the balance sheet 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.
8
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. Additional purchase
price adjustments resulting in an additional loss of approximately $53,000
were also recorded during the third quarter of 2004 representing the loss
on disposal of the remaining fixed assets related to the video operations
that were not purchased by Thomson offset somewhat by a gain related to
additional inventory purchased by Thomson.
The Company has calculated the tax effect for the discontinued operations.
This resulted in an immaterial decrease in deferred tax assets. However,
based on management's assessment, the immaterial decrease 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 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 entered into a sublease with Thomson for
a portion of the office space it currently leases during the second
quarter of 2004. This sublease terminated in August of 2004.
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 through
May 14th, 2005 when such retention must be paid to the Company under the
terms of the Asset Agreement.
The operations of the video business unit were classified as discontinued
operations when the operations and cash flows of the business unit were
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.
9
Discontinued operations for the three and nine month periods below include
the following components:
Three Month Period Ended Nine Month Period Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net revenues $ 0 $ 1,350,539 $ 1,507,664 $ 5,500,946
Cost of goods sold and
operating expenses (28,258) (2,185,488) (4,955,439) (7,954,543)
------------ ------------ ------------ ------------
Loss from operations (28,258) (834,949) (3,447,775) (2,453,597)
(Loss) gain on sale of assets (53,049) 0 11,156,177 0
------------ ------------ ------------ ------------
(Loss) gain from
discontinued operations $ (81,307) $ (834,949) $ 7,708,402 $ (2,453,597)
============ ============ ============ ============
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 September 30, 2004 and 2003 is 18,006,324 and 15,513,757,
respectively. The weighted average number of common shares outstanding for
the nine-month periods ended September 30, 2004 and 2003 is 17,983,343 and
15,008,425, respectively. The total number of options and warrants to
purchase 7,095,507 and 7,315,425 shares of common stock that were
outstanding at September 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.
4. INVENTORIES:
Inventories consist of the following:
September 30, December 31,
2004 2003
----------- -----------
Purchased materials $ 2,036,798 $ 1,869,542
Work in process 1,571,415 185,041
Finished goods 707,217 404,765
Spare parts and demonstration inventory 0 1,207,097
----------- -----------
4,315,430 3,666,445
Less allowance for inventory obsolescence (65,365) (1,189,460)
----------- -----------
$ 4,250,065 $ 2,476,985
=========== ===========
5. OTHER ASSETS:
Other assets consists of the following:
September 30, 2004
-----------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,074,639 $ (2,334,333) $ 7,740,306
Prepaid services 1,600,000 (1,200,000) 400,000
Prepaid licensing fees 2,405,000 (864,833) 1,540,167
Other intangible assets 841,140 (46,730) 794,410
Deposits and other 588,912 0 588,912
------------ ------------ ------------
$ 15,509,691 $ (4,445,896) $ 11,063,795
============ ============ ============
10
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 September 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 283,000 shares of its common stock at exercise prices ranging from
$3.99 to $4.67 per share. The options granted vest ratably over five years
and expire five years from the date they become vested.
As of September 30, 2004 options to purchase 1,012,940 shares of common
stock were available for future grants under the 2000 Plan.
7. STOCK AUTHORIZATION AND ISSUANCE
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. Stock-based compensation expense related to this
transaction was included within discontinued operations in the
accompanying statement of operations. The shares are no longer restricted,
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. PURCHASE OF ASSETS
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. 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. ParkerVision acquired all the
intellectual property including designs, schematics and software related
to the cordless phone valued at approximately $841,000 as well as high
volume production tooling valued at approximately $159,000 and certain
component inventory valued at approximately $50,000. The intellectual
property is being amortized over a three-year period and is charged to
expense in the statement of operations. The tooling purchased is being
depreciated over a three-year period and is charged to expense in the
11
statement of operations.
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.
RESULTS OF OPERATIONS FOR EACH OF THE THREE AND NINE-MONTH PERIODS ENDED
SEPTEMBER 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.
The operations of the video business unit were classified as net (loss) gain
from discontinued operations when the operations and cash flows of the business
unit were eliminated from ongoing operations. The prior years' operating
activities for the video business unit have also been reclassified to "Net
(loss) gain from discontinued operations" in the accompanying Statements of
Operations.
Net (loss) gain from discontinued operations for the three and nine month
periods below include the following components:
Three Month Period Ended Nine Month Period Ended
--------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net revenues $ 0 $ 1,350,539 $ 1,507,664 $ 5,500,946
Cost of goods sold and
operating expenses (28,258) (2,185,488) (4,955,439) (7,954,543)
------------ ------------ ------------ ------------
Loss from operations (28,258) (834,949) (3,447,775) (2,453,597)
(Loss) gain on sale of assets (53,049) 0 11,156,177 0
------------ ------------ ------------ ------------
(Loss) gain from
discontinued operations $ (81,307) $ (834,949) $ 7,708,402 $ (2,453,597)
============ ============ ============ ============
12
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 nine months ended September 30, 2004 were $96,182 and
$515,680, 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 an e-retailer relationship. During the
third quarter of 2004 the Company expanded its product distribution to
additional retail outlets including, but not limited to, Comp USA. The Company
currently has products in over 200 retail storefronts. 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 retail channels, 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 September 30, 2004, the Company had deferred revenue from sales of
wireless products of approximately $543,000.
The Company anticipates growth in revenues and deferred revenues in the fourth
quarter of 2004 and into 2005 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 nine month periods ended September 30, 2004 gross margins
based on aggregate revenues as a percentage of sales were 13.5% and 58.8%,
respectively.
The gross margins for products and royalties for the three and nine-month
periods were as follows:
September 30, 2004 September 30, 2003
----------------------------- --------------------------
$ % $ %
------------- ------------ ------------ ----------
Products
Three month period $ 12,994 13.5% N/A N/A
Nine month period 53,199 20.0% N/A N/A
Royalties
Three month period 0 0 N/A N/A
Nine month period $250,000 100.0% N/A N/A
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The Company's product margins in 2004 are reflective of significant excess
capacity costs, high component costs due to initial low volume purchases, and
start-up production costs for new products. The fluctuations in margin between
periods in 2004 is due to shared absorption of excess capacity costs in the
first half of 2004 between the Company's wireless and video divisions. Once
production volume increases, 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 the related licensing agreement.
Gross margin may be negatively impacted in future periods by many factors,
including fluctuating component costs, start-up costs associated with new
product introductions, and sales price reductions on products due to competitive
pressures.
RESEARCH AND DEVELOPMENT EXPENSES
The Company's research and development expenses for the three-month period ended
September 30, 2004 were $2,784,904 as compared to $3,411,990 for the same period
in 2003. For the nine-month period ended September 30, 2004, the Company's
research and development expenses were $8,160,647 as compared to $10,305,302 for
the same period in 2003. The decreases for the three and nine month periods of
approximately $627,100 and $2,144,700, respectively, were primarily due to the
Company's ability to obtain, through third parties, certain technologies
previously being developed internally by the Company. 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. These decreases were somewhat offset by an
increase in amortization expense due to increases in patent costs and intangible
research and development assets.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses for the three-month period ended September 30,
2004 were $622,253 as compared to $290,793 for the same period in 2003, and for
the nine month period ended September 30, 2004 were $1,360,520 compared to
$636,421 for the same period in 2003. The increases for the three and nine month
period of approximately $ 331,500 and $724,100 were primarily due to increases
in advertising and retail market launch expenses to promote the Company's
wireless products and also the addition of marketing and customer support
personnel to support such products. The Company anticipates marketing and
selling expenses to increase in relation to increases in future sales and
revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three month period ended September
30, 2004 were $1,668,862 as compared to $1,069,508 for the same period in 2003
and for the nine month period ended September 30, 2004 were $3,838,591 compared
to $3,122,079 for the same period in 2003. The increases for the three and nine
month periods of approximately $599,400 and $716,500 were primarily due to
increases in corporate outside professional fees and personnel costs, offset
somewhat by decreases in corporate insurance costs. The increase in professional
fees incurred is due to fees from outside consultants and the Company's external
auditors in conjunction with the internal control evaluation as required by
Section 404 of the Sarbanes Oxley Act of 2002. The Company is in the process of
reviewing, documenting, testing and evaluating the internal controls over
financial reporting. Although management is diligently reviewing, documenting,
testing and, in some cases, remediating deficiencies in internal control over
financial reporting, in the case of those controls requiring remediation, there
can be no assurance that remediation will be completed by December 31, 2004, or
if completed, whether such remediation will be completed in sufficient time to
verify the effectiveness of the remediated controls as of December 31, 2004. As
a result there can be no assurance that management will be in a position to
report that the Company's internal control over financial reporting is effective
at December 31, 2004.
14
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 nine month periods ended September 30, 2004 was
$56,013 and $155,861, respectively, as compared to $64,089 and $367,037 for the
same periods in 2003. The decreases of approximately $8,100 and $211,200 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 a net loss of approximately $(5,088,300) or $(0.28) per common
share for the three-month period ended September 30, 2004 as compared to a net
loss of approximately $(5,627,200) or $(0.36) for the same period in 2003,
representing an decrease in net loss of approximately $538,900 or $0.08 per
common share. The net loss decreased from approximately $(16,234,400) or $(1.08)
per common share for the nine month period ended September 30, 2003 to
approximately $(5,192,300) or $(0.29) per common share for the same period in
2004, representing a decrease in the net loss of approximately $11,042,100 or
$0.79 per common share.
The increase in net income and decrease in net loss for the three and nine 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 Nine Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
-------- -------- -------- --------
Loss from continuing $ (5,007) $ (4,792) $(12,900) $(13,781)
operations
(Loss) gain from
discontinued operations (81) (835) 7,708 (2,453)
-------- -------- -------- --------
Net loss $ (5,088) $ (5,627) $ (5,192) $(16,234)
======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, the Company had working capital of approximately $19.6
million including approximately $14.9 million in cash, cash equivalents and
short-term investments. This represents a decrease of approximately $3.6 million
from working capital of $23.2 million at December 31, 2003. This decrease is due
to the use of cash to fund operations offset largely by the proceeds from the
sale of the video business in the second quarter of 2004.
Inventories have increased approximately $2,047,400 and $1,773,100 during the
three month and nine-month periods ended September 30, 2004. The increase for
the three-month period was due to the purchase of raw materials and build up of
inventory for the Company's new wireless products. The increase for the
nine-month period was also due to the purchase of raw materials and build up of
inventory for the Company's new wireless products, offset somewhat by the sale
of the video division inventory to Thomson in May of 2004.
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, to
increase brand recognition and customer demand for its products, and to
sufficiently increase production volumes to meet demand.
15
The overall revenues for 2004 will not be sufficient to cover the operational
expenses of the Company for this fiscal year. The Company is increasing
inventories and expanding sales, and it anticipates sales growth in 2005. It,
however, does not expect that sales revenues will fully offset the expenses of
operations in the near term. The expected continued losses and negative cash
flow will continue to be funded by the use of its available working capital. The
Company may seek, but does not have in place, operating lines of credit and
other traditional forms of financing to increase its working capital to fund
operating expenses. The continuation of the current scope of operations is
dependant on increased revenues or additional funding or a combination of both.
The failure to have sufficient revenues or capital will cause the Company to
reassess its business plan and may require reductions in discretionary spending
and curtailment of some operations. A reduction would have a material adverse
effect on the Company's ability to achieve its long-term business objectives.
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 September 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.
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 sale Title of Number other discounts to market price registration terms of exercise or
security sold afforded to purchasers claimed conversion
- -------------- -------------- ---------- ---------------------------------- -------------- --------------------------
7/1/04 to Options to 283,000 Option granted - no 4(2) Expire five years from
9/30/04 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 $3.99 to
$4.67 per share
16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable.
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. Not applicable.
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
November 8, 2004 By: /S/JEFFREY L. PARKER
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
November 8, 2004 By: /S/CYNTHIA L. POEHLMAN
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
17