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, 2005
( ) 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 October 28, 2005, 20,910,915 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,
2005 December 31,
(unaudited) 2004
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 13,275,751 $ 6,434,901
Short-term investments 1,288,807 1,363,571
Accounts receivable, net of allowance for doubtful
accounts of $144,097 and $19,164 at September 30, 2005
and December 31, 2004, respectively 27,916 310,400
Interest and other receivables 264,751 1,277,497
Inventories, net 153,039 2,625,763
Prepaid expenses and other current assets 1,261,710 1,781,595
------------- -------------
Total current assets 16,271,974 13,793,727
PROPERTY AND EQUIPMENT, net 2,297,799 3,372,894
OTHER ASSETS, net 9,371,562 10,914,017
------------- -------------
Total assets 27,941,335 28,080,638
============= =============
CURRENT LIABILITIES:
Accounts payable 568,184 857,954
Accrued expenses:
Salaries and wages 802,477 1,130,860
Professional fees 572,704 202,787
Warranty reserves 10,270 4,853
Purchase commitments 0 194,000
Other accrued expenses 174,976 524,930
Deferred revenue 295,064 407,403
------------- -------------
Total current liabilities 2,423,675 3,322,787
------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8, 10 and 11) -- --
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized, 20,901,374 and
18,006,324 shares issued and outstanding at September 30, 2005 and
December 31, 2004, respectively 209,014 180,063
Warrants outstanding 17,693,482 14,573,705
Additional paid-in capital 137,699,029 120,488,205
Accumulated other comprehensive loss (3,099) (427)
Accumulated deficit (130,080,766) (110,483,695)
------------- -------------
Total shareholders' equity 25,517,660 24,757,851
------------- -------------
Total liabilities and shareholders' equity $ 27,941,335 $ 28,080,638
============= =============
The accompanying notes are an integral part of these
financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, Nine months ended September 30,
------------------------------ ------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Product revenue $ 430,135 $ 62,510 $ 724,514 $ 172,096
Royalty revenue 0 0 0 250,000
------------ ------------ ------------ ------------
Net revenues 430,135 62,510 724,514 422,096
------------ ------------ ------------ ------------
Cost of goods sold 338,669 83,188 734,184 212,482
Write down of inventory to net realizable value 0 0 2,250,586 0
------------ ------------ ------------ ------------
Gross margin 91,466 (20,678) (2,260,256) 209,614
------------ ------------ ------------ ------------
Research and development expenses 2,187,921 2,784,904 8,301,855 8,160,648
Marketing and selling expenses 561,761 588,581 2,834,399 1,266,936
General and administrative expenses 1,387,480 1,668,862 4,721,437 3,838,591
Impairment loss and (gain) loss on disposal of 0
equipment (5,658) 0 1,874,110
------------ ------------ ------------ ------------
Total operating expenses 4,131,504 5,042,347 17,731,801 13,266,175
------------ ------------ ------------ ------------
Interest and other income 138,378 56,013 394,986 155,863
------------ ------------ ------------ ------------
Loss from continuing operations (3,901,660) (5,007,012) (19,597,071) (12,900,698)
Net (loss) gain from discontinued operations
(including gain on the disposal of
$11,156,177 in 2004) 0 (81,307) 0 7,708,402
------------ ------------ ------------ ------------
Net loss (3,901,660) (5,088,319) (19,597,071) (5,192,296)
Unrealized gain (loss) on securities 297 (1,676) (2,672) (28,027)
------------ ------------ ------------ ------------
Comprehensive loss $ (3,901,363) $ (5,089,995) $(19,599,743) $ (5,220,323)
============ ============ ============ ============
Basic and diluted net loss per common share
Continuing operations $ (0.19) $ (0.28) $ (0.97) $ (0.72)
Discontinued operations 0.00 0.00 0.00 0.43
------------ ------------ ------------ ------------
Total $ (0.19) $ (0.28) $ (0.97) $ (0.29)
============ ============ ============ ============
The accompanying notes are an integral part of these
financial statements.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,901,660) $ (5,088,319) $(19,597,071) $ (5,192,296)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 443,242 766,914 2,029,594 2,305,160
Amortization of discounts on investments 7,257 8,573 22,092 32,022
Provision for obsolete inventories 0 45,365 67,940 140,365
Write-down of inventory to net realizable value 0 0 2,250,586 0
Impairment loss on other assets 0 0 1,245,792 0
Stock compensation 229,150 200,000 658,300 805,909
Gain on sale of discontinued operations 0 53,049 0 (11,156,177)
(Gain) loss on disposal and impairment of equipment (5,658) 0 628,746 0
Changes in operating assets and liabilities, net of
disposition in 2004:
Accounts receivable, net 94,929 (125,900) 282,484 68,384
Inventories 250,630 (2,092,744) 154,198 (4,233,076)
Prepaid expenses, interest receivable and other assets 4,414 322,133 1,489,047 509,358
Accounts payable and accrued expenses (327,983) 630,120 (786,773) 909,704
Deferred revenue (535,481) 484,985 (112,339) 533,578
------------ ------------ ------------ ------------
Total adjustments 160,500 292,495 7,929,667 (10,084,773)
------------ ------------ ------------ ------------
Net cash used in operating activities (3,741,160) (4,795,824) (11,667,404) (15,277,069)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/sale of investments 0 670,000 300,000 1,470,000
Purchase of investments 0 0 (250,000) 0
Proceeds from sale of video business unit assets and other
property and equipment 15,650 934,826 15,650 12,184,826
Purchases of property and equipment (180,390) (439,283) (659,825) (860,635)
Payments for patent costs and other intangible assets (434,782) (1,158,696) (1,140,375) (1,541,286)
------------ ------------ ------------ ------------
Net cash (used in) provided by investing activities (599,522) 6,847 (1,734,550) 11,252,905
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 6,000 0 20,242,804 0
------------ ------------ ------------ ------------
Net cash provided by financing activities 6,000 0 20,242,804 0
------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(4,334,682) (4,788,977) 6,840,850 (4,024,164)
CASH AND CASH EQUIVALENTS, beginning of period 17,610,433 18,232,688 6,434,901 17,467,875
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 13,275,751 $ 13,443,711 $ 13,275,751 $ 13,443,711
============ ============ ============ ============
The accompanying notes are an integral part of these
financial statements.
4
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 three and nine month periods ended September 30,
2005 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2005.
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, 2004. 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, 2004.
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,
2005 and 2004. In connection with the private placement of 2,880,000
shares of the Company's common stock on March 10, 2005, the Company issued
warrants to purchase 720,000 shares of common stock. These warrants were
recorded at their estimated fair value of approximately $3.1 million (see
Note 8). On April 12, 2005, the Company issued options, valued at
approximately $146,000, 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 10). In May 2004, 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
The Company warrants its products against defects in workmanship and
materials for approximately one year. Estimated costs related to
warranties are accrued at the time of revenue recognition. The warranty
obligations related to the Company's video business were transferred to
Thomson upon sale of the assets of the video business unit (see Note 10).
For the three and nine month periods ended September 30, 2005, warranty
(recoveries) expenses were $(25,598) and $6,638, respectively. For the
three and nine month periods ended September 30, 2004, warranty expenses
were $962 and $13,317, respectively, of which $0 and $10,587,
respectively, were included in discontinued operations.
5
A reconciliation of the changes in the aggregate product warranty
liability for the three and nine-month periods ended September 30, 2005
are as follows:
Warranty Reserve
Debit (Credit)
------------------------------------------------------
Three months ended Nine month ended
September 30, 2005 September 30, 2005
------------------------- -------------------------
Balance at the beginning of the period $(37,089) $ (4,853)
Accruals for warranties issued during the period 0 (32,236)
Accruals related to pre-existing warranties
(including changes in estimates) 25,598 25,598
Settlements made (in cash or in kind) during the period 1,221 1,221
------------------------- -------------------------
Balance at the end of the period $(10,270) $(10,270)
========================= =========================
The extended service and support contract obligations related to the
Company's video business were transferred to Thomson upon sale of the
assets of the video business unit (see Note 10). The Company no longer
provides extended service and support contracts on its current products. A
reconciliation of the changes in the aggregate deferred revenue from
extended service contracts for the three and nine month periods ended
September 30, 2004 are as follows:
Deferred Revenue from Extended Service Contracts
-----------------------------------------------------
Three months ended Nine months ended
September 30, 2004 September 30, 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.
Revenue from product sales is generally recognized at the time the product
is shipped, provided that persuasive evidence of an arrangement exists,
title and risk of loss has transferred to the customer, the sales price is
fixed or determinable and collection of the receivable is reasonably
assured. The Company's product revenue for 2005 and 2004 relates primarily
to products sold through retail distribution channels, with limited sales
direct to end users through the Company's own website and direct value
added resellers. Retail distributors are generally given business terms
that allow for the return of unsold inventory. In addition, the Company
offers a 30-day money back guarantee on its 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. At September 30, 2005
and December 31, 2004, the Company had deferred revenue from product sales
in the distribution channel of $295,064 and $407,403, respectively. In
addition, since the Company does not have sufficient history with sales of
this nature to establish an estimate of expected returns, it has recorded
a return reserve in the amount of 100% of product sales within the 30-day
guarantee period.
In addition to the reserve for sales returns, gross product revenue is
reduced for price protection programs, customer rebates and cooperative
marketing expenses deemed to be sales incentives to
6
derive net revenue. For the nine month period ended September 30, 2005,
net revenue was reduced for cooperative marketing costs in the amount of
$35,532. For the three and nine month periods ended September 30, 2004,
net revenue was reduced for cooperative marketing costs in the amount of
$42,000 and $108,500 respectively.
Accounting for Stock-Based Compensation.
At September 30, 2005, the Company has two stock-based employee
compensation plans. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. For
non-employee stock option grants, the Company applies the fair value
recognition provisions of FASB Statement No. 123, "Accounting for
Stock-Based Compensation", ("FAS 123"), as amended by FASB Statement No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure"
("FAS 148"). For employee stock option grants, no stock-based employee
compensation cost is reflected in net loss, 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 FAS 123, as amended
by FAS 148, to stock-based employee compensation.
Three months ended Nine months ended
------------------------------------ ---------------------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
-------------- ---------------- ------------------- --------------
Net loss, as reported $ (3,901,660) $ (5,088,319) $ (19,597,071) $ (5,192,296)
Deduct: Total stock-based
employee compensation expense
determined under fair value method
(1,958,207) (2,767,828) (5,446,138) (8,476,259)
-------------- ---------------- ------------------- --------------
Pro forma net loss $ (5,859,867) $ (7,856,147) $ (25,043,209) $ (13,668,555)
============== ================ =================== ==============
Basic and diluted net loss per share:
============== ================ =================== ==============
As reported $ (.19) $ (.28) $ (.97) $ (.29)
============== ================ =================== ==============
Pro forma $ (.28) $ (.44) $ (1.24) $ (.76)
============== ================ =================== ==============
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS
123(R) revises FAS123 and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. In
addition to revising FAS 123, FAS 123(R) supersedes Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and amends FASB Statement No. 95, Statement of Cash Flows (FAS 95).
The provisions of FAS 123(R) apply to awards that are granted, modified,
or settled at the beginning of annual reporting period that starts after
June 15, 2005. The Company will adopt FAS 123(R) effective January 1, 2006
on a modified prospective basis without restatement of prior years. The
Company has determined that FAS 123(R) will have a substantial impact on
the financial statements of the Company due to its requirement to expense
the fair value of employee stock options and other forms of stock-based
compensation in the Company's consolidated statement of operations,
thereby increasing losses and loss per share. The Company anticipates that
the stock based compensation impact on fiscal year 2006 will be
approximately $1,243,000 based on existing outstanding options that vest
in future periods.
7
Reclassifications
Certain reclassifications have been made to the 2004 consolidated
financial statements in order to conform to the 2005 presentation.
2. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITY
On June 23, 2005 the Company's Board of Directors unanimously approved
management's decision to exit its retail business activities. On June 28,
2005 the Company formally announced its exit plan and terminated 44
employees whose roles were related to retail business activities. As of
June 30, 2005, termination benefits of approximately $575,000 were accrued
and charged to expense in the consolidated statement of operations. All of
these accrued termination benefits were paid as of September 30, 2005.
In addition to termination benefits, the Company recognized impairment
charges on certain long-lived assets related to its retail activities.
These charges include impairment of prepaid license fees of approximately
$662,000, impairment of other intangible assets of approximately $584,000
and impairment of fixed assets, primarily the manufacturing and prototype
facility assets, of approximately $626,000. These impairment charges are
included as impairment loss in the consolidated statement of operations.
The Company also reduced the carrying value of its inventories to their
estimated realizable value at June 30, 2005, resulting in a charge of
approximately $2.25 million which is included as a separate component of
cost of goods sold in the consolidated statement of operations.
During the third quarter of 2005, the Company initiated the process of
reclaiming unsold product inventory from the distribution channel,
liquidating its raw materials and finished product inventory through
wholesale channels and liquidating its manufacturing and prototype
facility assets and other property and equipment utilized in the retail
business activities. The Company anticipates substantial completion of
this process in the fourth quarter of 2005.
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, 2005 and 2004 are 20,901,135 and 18,006,324,
respectively. The weighted average number of common shares outstanding for
the nine-month periods ended September 30, 2005 and 2004 are 20,126,637
and 17,983,343, respectively. Options and warrants to purchase 6,608,435
and 7,095,507 shares of common stock were outstanding at September 30,
2005 and 2004, respectively, and were excluded from the computation of
diluted earnings per share as the effect of these options and warrants
would have been anti-dilutive.
4. INVESTMENTS
At September 30, 2005 and December 31, 2004, short-term investments
included investments classified as available-for-sale reported at their
fair value based on quoted market prices of $1,038,807 and $1,363,571,
respectively. Short term investments at September 30, 2005 also included a
certificate of deposit reported at cost of $250,000. The certificate of
deposit, which
8
expires in November 2005, was purchased to secure a standby letter of
credit with one of the Company's retailers for purposes of guaranteeing
payments on customer rebate programs.
5. INVENTORIES:
Inventories consist of the following:
September 30, December 31,
2005 2004
----------- -----------
Purchased materials $ 89,619 $ 1,837,364
Work in process 0 165,709
Finished goods 63,420 831,435
----------- -----------
153,039 2,834,508
Less allowance for inventory obsolescence 0 (208,745)
----------- -----------
$ 153,039 $ 2,625,763
=========== ===========
On June 28, 2005, the Company announced its plans to exit its retail
business activities and its inventories were reduced to their estimated net
realizable values (see Note 2). The Company is in the process of reclaiming
any remaining unsold finished goods inventory from its retail outlets and
distributors and has an agreement in place with a wholesaler to purchase the
remaining inventory upon its return to the Company. In addition, the
Company's purchased materials inventory has been consigned to a wholesaler.
6. OTHER ASSETS:
Other assets consist of the following:
September 30, 2005
----------------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------------- ------------------ -------------------
Patents and copyrights $11,626,540 $(2,884,774) $8,741,766
Prepaid licensing fees 705,000 (367,500) 337,500
Deposits and other 292,296 0 292,296
------------------- ------------------ -------------------
$12,623,836 $(3,252,274) $9,371,562
=================== ================== ===================
December 31, 2004
----------------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------------- ------------------ -------------------
Patents and copyrights $10,486,165 $(2,462,477) $ 8,023,688
Prepaid licensing fees 2,405,000 (1,029,250) 1,375,750
Other intangible assets 841,140 (116,825) 724,315
Prepaid services, non
current portion 200,000 0 200,000
Deposits and other 590,264 0 590,264
------------------- ------------------ -------------------
$14,522,569 $(3,608,552) $ 10,914,017
=================== ================== ===================
On June 28, 2005, the Company announced its plans to exit its retail
business activities (see Note 2). As a result of this action, certain
prepaid license fees and other intangible assets became impaired.
9
Impairment charges of $661,667 and $584,125 related to prepaid license
fees and other intangibles, respectively, have been included as impairment
loss in the consolidated statement of operations.
7. STOCK OPTIONS
For the three months ended September 30, 2005, the Company granted stock
options under the 2000 Performance Equity Plan (the "2000 Plan") to
certain members of the executive management group. The Chief Executive
Officer was granted a fully vested option to purchase 75,000 shares of
common stock. Other members of the executive management group were granted
options to purchase an aggregate of 134,000 shares of common stock which
vest over three years. All of the options granted have an exercise price
of $5.77 per share and expire seven years from the date of grant.
As of September 30, 2005 options to purchase 1,266,020 shares of common
stock were available for future grants under the 2000 Plan.
8. STOCK AUTHORIZATION AND ISSUANCE
On September 19, 2005 the Company entered into a consulting agreement with
an independent engineering consultant to perform services for the Company
over a one year period. Total consideration for the services in the amount
of $160,000 is payable to the consultant in cash or in shares of
ParkerVision common stock at the Company's sole option. Payments will be
made in equal installments on October 3, 2005, January 2, 2006 and April
3, 2006. As of the date of the agreement, the total payment of $160,000
was recorded as an other asset which is amortized ratably over the service
period, or one year. A corresponding liability has been recorded in other
accrued expenses and will be reduced as the installment payments are paid
to the consultant.
On March 14, 2005, ParkerVision consummated the sale of an aggregate of
2,880,000 shares of common stock and warrants to purchase an additional
720,000 shares of common stock to a limited number of institutional and
other investors (the "Investors") in a private placement transaction
pursuant to offering exemptions under the Securities Act of 1933 for net
proceeds of $20.2 million. The shares represent 14% of the Company's
outstanding common stock on an after-issued basis. Each warrant had an
estimated fair value of $6.29. The fair value was estimated as of the date
of the transaction using the Black-Scholes option pricing model with the
following assumptions: risk free interest rate of 4.15%, no expected
dividend yield, expected life of five years and expected volatility of
80.59%. The warrants were recorded in equity at their relative fair value
based on an allocation of gross proceeds obtained. The warrants are
immediately exercisable at an exercise price of $9.00 per share and expire
on March 10, 2010.
Under the terms of the private placement transaction, the Company is
required to maintain an effective registration statement for the shares of
common stock, including the shares underlying the warrants. In the event
that the registration statement ceases to be effective for a period of
thirty consecutive days, or greater than sixty non consecutive days in a
twelve month period, the Company is obligated to pay liquidated damages to
the Investors. The liquidated damages are calculated as 1% of the purchase
price paid by the Investors for each thirty day period in which the
registration statement is not in effect, for a maximum of 10% of the
purchase price paid, or $2,160,000. The liquidated damages are only
payable relative to the shares of common stock still held by the
Investors.
10
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.
9. WARRANTS
In accordance with EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock", the warrants issued in conjunction with the private placement on
March 14, 2005 (Note 8) were classified as equity on the issuance date.
10. DISCONTINUED OPERATIONS
On May 14, 2004, the Company completed the sale of certain designated
assets of its video division to Thomson Broadcast & Media Solutions, Inc.
and Thomson Licensing, SA (collectively referred to as "Thomson"). The
assets sold included the PVTV and CameraMan products, services, 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 and other assets.
The sales price of the assets was approximately $13.4 million, which
included $11.25 million paid at closing, a $0.9 million price adjustment
paid in July 2004 and a $1.25 million price holdback payable in May 2005.
The price adjustment represents the net book value of assets and
liabilities sold, excluding intangible assets. The price holdback
represents a portion of the sales price held by Thomson to indemnify
Thomson against breaches of the Company's continuing obligations and its
representations and warranties. In May 2005, Thomson paid the Company
approximately $1.1 million representing the price holdback, including
interest, less approximately $215,000 for claims made against the
Company's indemnification obligations. The Company has disputed these
claims as unfounded and does not believe a loss is probable.
The Company recognized a gain on the sale of discontinued operations in
2004 of $11,220,469 which is net of losses on the disposal of remaining
assets related to the video operations of $598,088.
The Company 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 Thomson in respect of its intellectual property
that was transferred or should have been transferred if used in connection
with the video operations. Thomson was 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 Thomson.
The sale 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 Thomson 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 Thomson will not be limited as to time or amount.
11
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 consolidated statement of
operations.
Discontinued operations for the three and nine month periods below include
the following components:
Three Month Period Nine Month Period Ended
Ended
------------------------ -------------------------
September 30, 2004 September 30, 2004
------------------------ -------------------------
Net revenues $ 0 $ 1,507,664
Cost of goods sold and operating expenses (28,258) (4,955,439)
------------------------ -------------------------
Net loss from operations (28,258) (3,447,775)
Gain (loss) on sale of assets (53,049) 11,156,177
------------------------ -------------------------
(Loss) gain from discontinued operations $(81,307) $ 7,708,402
======================== =========================
11. 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.
12. LIQUIDITY AND CAPITAL RESOURCES
In June 2005, the Company announced its decision to exit its retail
business activities and continue its pursuit of a business strategy as a
fabless semiconductor company. The Company does not anticipate generating
revenue from its original equipment manufacturer ("OEM") activities in
2005 and furthermore expects limited remaining revenue recognition from
its retail products. The Company's ability to generate future revenues is
dependent upon the rate at which the Company is able to secure OEM design
wins and produce integrated circuits ("IC's") to OEM specifications.
The overall revenues for 2005 will not be sufficient to cover the
operational expenses of the Company for this fiscal year. The expected
losses and negative cash flow will continue to be funded by the use of
available working capital. At September 30, 2005, the Company had working
capital of approximately $13.8 million including approximately $14.6
million in cash, cash equivalents and short-term investments. The Company
believes that its current capital resources will be sufficient to support
the Company's liquidity requirements at least through the first half of
2006. The long-term continuation of the Company's business plans is
dependent upon generation of sufficient revenues from its products to
offset expenses. In the event that the Company does not generate
sufficient revenues, it will be required to obtain additional funding
through public or private financing, if available, and/or reduce certain
discretionary spending. Management believes certain operating costs could
be reduced if working capital decreases significantly and additional
funding is not available. Management also believes it has the potential to
collect non recurring engineering charges and/or
12
advance payments for custom designed products from OEM prospective
customers to offset certain product development expenses. In addition, the
Company currently has no outstanding long-term debt obligations. Failure
to generate sufficient revenues, raise additional capital and/or reduce
certain discretionary spending will have a material adverse effect on the
Company's current operations and its ability to achieve its intended
long-term business goals.
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, 2005 and 2004
General
On June 28, 2005 the Company announced its plan to exit its retail business
activities and continue its pursuit of an OEM business strategy as a pure-play
fabless semiconductor company. The Company's decision to exit its retail
activities was precipitated by increased interest from OEM prospects in the
Company's core wireless technologies. Management determined that the investment
required to increase brand awareness, expand product offerings, and expand the
distribution channel for retail products would detract from the Company's
ability to capitalize on OEM opportunities.
Exiting the retail business resulted in charges to the Company's second quarter
operating results totaling approximately $4.7 million, primarily related to
employee severance benefits and the reduction of assets to their expected
recovery value. During the third quarter of 2005, the Company initiated the
process of reclaiming unsold product inventory from the distribution channel,
liquidating its raw materials and finished product inventory through wholesale
channels and liquidating its manufacturing and prototype facility assets and
other property and equipment utilized in the retail business activities. The
Company anticipates substantial completion of its retail exit activities by the
end of 2005.
Revenues
Product revenues for the three and nine month periods ended September 30, 2005
and 2004 represent sales of wireless consumer products. Product revenues for the
three month periods ended September 30, 2005 and 2004 were $430,135 and $62,510,
respectively. Product revenues for the nine month periods ended September 30,
13
2005 and 2004 were $724,514 and $172,096, respectively. In the first quarter of
2004, the Company also recognized a one-time, previously deferred royalty
payment of $250,000 upon termination of a licensing agreement.
The increase in product revenue from 2004 to 2005 is primarily a result of the
Company's expansion of its retail distribution channel starting in the third
quarter of 2004. In addition, the third quarter of 2005 included revenues from
the liquidation of remaining on-hand finished product inventory to a wholesaler
and the recognition of sell-through revenues from retailers based on expiration
of such retailers' right to return unsold merchandise. At September 30, 2005,
the Company has $295,064 in deferred revenue which represents the maximum
potential remaining revenue to be realized from retail product sales. The
Company expects a substantial portion of this deferred revenue will be
recognized as product revenue over the next two quarters as additional
retailers' rights to return merchandise expire. Alternatively, certain
distributors have the right to return unsold merchandise through the first
quarter of 2006, at which time the returned inventory will be liquidated through
wholesale channels.
The Company is actively pursuing OEM design opportunities for its ICs but does
not anticipate generating revenue from sales of its ICs in 2005.
Gross Margin
The gross margins for products and royalties for the three and nine-month
periods were as follows:
September 30, September 30,
2005 2004
------------- -----------
Products
Three month period $ 91,466 $ (20,678)
Nine month period $(2,260,256) $ (40,386)
Royalties
Three month period $ 0 $ 0
Nine month period $ 0 $ 250,000
As a result of the Company's decision to exit its retail business activities,
the Company's 2005 product margins were negatively impacted by a $2.25 million
write down of inventory to estimated net realizable value in June 2005. This
reduction in inventory value was due to the Company's expectation that its
remaining finished product inventory would be sold through wholesalers at
significantly reduced prices than those realized through the retail channel.
During the third quarter of 2005, the Company recognized a higher percentage of
its revenues from the retail channel resulting in less product sales through
wholesale liquidation and an overall higher average selling price per unit than
anticipated. As a result, margins for the quarter ended September 2005 were
$91,466, or 21.2% of net revenues.
The Company's product margins in 2004 and the first half of 2005 are reflective
of significant excess capacity costs and low volume component purchase 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.
Research and Development Expenses
The Company's research and development expenses for the three month period ended
September 30, 2005 were $2,187,921 as compared to $2,784,904 for the same period
in 2004. The decrease of
14
$596,983 was primarily due to the reduction of product engineering staff in June
2005 and decreased depreciation and amortization of fixed and intangible assets
that were impaired in connection with the June 2005 exit from retail business
activities. These decreases were somewhat offset by increased outsourced
engineering fees.
For the nine-month period ended September 30, 2005, the Company's research and
development expenses were $8,301,855 as compared to $8,160,648 for the same
period in 2004. The increase of $141,207 was primarily due to the cost of
maintaining a production facility for prototype purposes in 2005, offset by
decreases in outside design services related to retail product development and
decreases in depreciation from fully depreciated engineering software and
equipment.
Marketing and Selling Expenses
Marketing and selling expenses for the three month period ended September 30,
2005 were $561,761, representing a $26,820 reduction from marketing and selling
expenses of $588,581 for the same period in 2004. This reduction is due to
decreased marketing expenses for retail product marketing, offset by increased
sales and marketing personnel costs related to OEM activities.
For the nine month period ended September 30, 2005 marketing and selling
expenses were $2,834,399 compared to $1,266,936 for the same period in 2004. The
increase of $1,567,463 for the nine month period was primarily due to increases
in sales and marketing personnel and related costs and promotional activities
related to the retail business during the first half of 2005.
General and Administrative Expenses
General and administrative expenses for the three month period ended September
30, 2005 were $1,387,480 as compared to $1,668,862 for the same period in 2004,
representing a decrease of $281,382. The decrease is primarily due to decreases
in personnel, corporate insurance costs and outside professional fees. For the
nine month period ended September 30, 2005, general and administrative expenses
were $4,721,437 compared to $3,838,591 for the same period in 2004. The increase
for the nine month period of $882,846 was primarily due to increases in
administrative personnel salaries, outside professional fees, directors'
compensation and bad debt provisions, offset somewhat by decreases in corporate
insurance costs.
Impairment Loss and Loss (Gain) on Disposal of Equipment
Impairment loss and loss (gain) on disposal of equipment includes gains and
losses on the disposal of property and equipment in the normal course of
business and losses incurred in June 2005 of approximately $1,872,000 related to
impairment of certain fixed assets, intangible assets, and prepaid licenses fees
in connection with the Company's exit from retail activities (see Note 2).
Interest and Other Income
Interest and other income consist of interest earned on the Company's
investments, net gains recognized on the sale of investments, and other
miscellaneous income. Interest and other income for the three and nine month
periods ended September 30, 2005 were $138,378 and $394,986, respectively, as
compared to $56,013 and $155,863 for the same periods in 2004. The increases of
approximately $82,365 and $239,123 for the three and nine month periods were
primarily due to an increase in cash and investments from the proceeds of the
private placement in the first quarter of 2005 and proceeds from the sale of
scrap inventory, offset by the continued use of cash and investments to fund
operations.
Discontinued Operations
15
On May 14, 2004, the Company completed the sale of certain designated assets of
its video division to Thomson Broadcast & Media Solutions, Inc. and Thomson
Licensing, SA (collectively referred to as "Thomson"). The prior year's
operations of the video business unit were classified as net loss 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 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 Nine Month
Period Ended Period Ended
------------ ------------
September 30, September 30,
2004 2004
------------ ------------
Net revenues $ 0 $ 1,507,664
Cost of goods sold and operating expenses (28,258) (4,955,439)
------------ ------------
Net loss from operations (28,258) (3,447,775)
(Loss) gain on sale of assets (53,049) 11,156,177
------------ ------------
(Loss) gain from discontinued operations $ (81,307) $ 7,708,402
============ ============
Loss and Loss per Share
The Company had a net loss of $(3,901,660) or $(0.19) per common share for the
three month period ended September 30, 2005 as compared to net loss of
$(5,088,319) or $(0.28) per common share for the same period in 2004,
representing a decrease in net loss of $1,186,659 or $0.09 per common share.
This decrease is primarily due to reduced operating expenses resulting from the
Company's June 2005 exit from its retail activities.
The net loss increased from $(5,192,296) or $(0.29) per common share for the
nine month period ended September 30, 2004 to $(19,597,071) or $(0.97) per
common share for the same period in 2005, representing an increase in the net
loss of approximately $14,404,775 or $0.68 per common share. The increase in net
loss for the nine month period is primarily due to the 2004 net gain on the sale
of the video business unit assets of $7.7 million and severance costs and
impairment charges related to the Company's exit from its retail business
activities in June 2005 of approximately $4.7 million.
Liquidity and Capital Resources
At September 30, 2005, the Company had working capital of approximately $13.8
million including approximately $14.6 million in cash, cash equivalents and
short-term investments. This represents an increase of approximately $3.3
million from working capital of $10.5 million at December 31, 2004. This
increase is due to the proceeds from the private placement in March 2005, offset
by cash used to fund operations in 2005.
In June 2005, the Company announced its decision to exit its retail business
activities and continue its pursuit of an OEM business strategy. The Company
does not anticipate generating revenue from its OEM activities in 2005 and
furthermore expects that its future potential revenue from retail products will
16
not exceed $300,000. The Company's ability to generate future revenues is
dependent upon the rate at which the Company is able to secure OEM design wins
and produce IC's to OEM specifications.
The overall revenues for 2005 will not be sufficient to cover the operational
expenses of the Company for this fiscal year. The expected losses and negative
cash flow will continue to be funded by the use of its available working
capital.
On March 14, 2005, ParkerVision received net proceeds of $20.2 million from the
sale of equity securities in a private placement transaction. The Company plans
to use its cash, cash equivalents and short term investments at September 30,
2005 to fund its future business plans. The Company believes that its current
capital resources, which include the March 2005 equity financing, will be
sufficient to support the Company's liquidity requirements at least through the
first half of 2006. The long-term continuation of the Company's business plans
is dependent upon generation of sufficient revenues from its products to offset
expenses. In the event that the Company does not generate sufficient revenues,
it will be required to obtain additional funding through public or private
financing, if available, and/or reduce certain discretionary spending.
Management believes certain operating costs could be reduced if working capital
decreases significantly and additional funding is not available. Management also
believes it has the potential to collect non recurring engineering charges
and/or advance payments for custom designed products from prospective OEM
customers to offset certain product development expenses. In addition, the
Company currently has no outstanding long-term debt obligations. Failure to
generate sufficient revenues, raise additional capital and/or reduce certain
discretionary spending could have a material adverse effect on the Company's
current operations and its ability to achieve its intended 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, 2005 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. For the three month period covered by this report, there has been no
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.
17
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
- -------------- -------------- ---------- ---------------------------------- -------------- --------------------------
8/09/05 Options to 75,000 Option granted - no 4(2) Expire seven years from
purchase consideration received by date granted, options
common stock Company until exercise are fully vested as of
granted to date of grant at an
CEO exercise price of $5.77
8/09/05 Options to 134,000 Option granted - no 4(2) Expire seven years from
purchase consideration received by date granted, options
common stock Company until exercise vest over three years at
granted to an exercise price of
officers and $5.77
management
employees
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 August 9, 2005. 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:
18
Votes Cast
-------------------------------------
Name For Against Withheld
----------------------- ----------------- ------------------- ------------
Jeffrey Parker 14,211,276 74,760 -0-
Todd Parker 14,176,635 109,401 -0-
David Sorrells 14,211,276 74,760 -0-
William Hightower 14,204,123 81,913 -0-
Richard Kashnow 14,187,014 99,022 -0-
William Sammons 14,185,314 100,722 -0-
Nam P. Suh 14,259,993 26,043 -0-
Papken der Torossian 14,235,384 50,652 -0-
John Metcalf 14,211,253 74,513 -0-
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 September 28, 2005. Item 7.01 - Regulation FD
Disclosure. Report of ParkerVision, Inc. filing amendments to
its Form 10-K report for the fiscal year ended December 31,
2004 and to each of its Form 10-Q reports for the fiscal
quarters ended March 31, 2005 and June 30, 2005 with related
explanations and clarifications for filings such amendments.
19
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 7, 2005 By: /s/Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
November 7, 2005 By: /s/Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
20