UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
[_] 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X].
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 8, 2006, 23,362,727 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
(UNAUDITED)
March 31, December 31,
2006 2005
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 23,617,906 $ 10,273,635
Short-term investments -- 295,555
Accounts receivable, net of allowance for doubtful accounts
of $5,981 and $4,856 at March 31, 2006 and December 31,
2005, respectively 670 14,854
Prepaid expenses 1,115,870 1,373,695
Other current assets 234,261 307,205
------------- -------------
Total current assets 24,968,707 12,264,944
PROPERTY AND EQUIPMENT, net 2,038,495 1,867,884
OTHER ASSETS, net 9,858,241 9,698,802
------------- -------------
Total assets 36,865,443 23,831,630
============= =============
CURRENT LIABILITIES:
Accounts payable 460,960 446,953
Accrued expenses:
Salaries and wages 502,945 405,701
Professional fees 371,653 287,667
Other accrued expenses 289,523 286,562
------------- -------------
Total current liabilities 1,625,081 1,426,883
DEFERRED RENT 446,350 5,163
------------- -------------
Total liabilities 2,071,431 1,432,046
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
23,348,135 and 20,958,765 shares issued and outstanding at
March 31, 2006 and December 31, 2005, respectively 233,481 209,588
Warrants outstanding 20,290,878 17,693,482
Additional paid-in capital 152,196,370 138,080,663
Accumulated other comprehensive loss -- (1,006)
Accumulated deficit (137,926,717) (133,583,143)
------------- -------------
Total shareholders' equity 34,794,012 22,399,584
------------- -------------
Total liabilities and shareholders' equity $ 36,865,443 $ 23,831,630
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
---------------------------
2006 2005
------------ ------------
Product revenue $ -- $ 171,982
Cost of goods sold -- 261,724
------------ ------------
Gross margin -- (89,742)
Research and development expenses 2,557,768 2,921,674
Marketing and selling expenses 554,392 989,970
General and administrative expenses 1,389,240 1,527,739
Loss on disposal of property and equipment -- 8,707
------------ ------------
Total operating expenses 4,501,400 5,448,090
Interest and other income 157,826 33,591
------------ ------------
Net loss (4,343,574) (5,504,241)
Unrealized gain (loss) on securities 1,006 (3,715)
------------ ------------
Comprehensive loss $ (4,342,568) $ (5,507,956)
============ ============
Basic and diluted net loss per common share $ (0.19) $ (0.30)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,343,574) $ (5,504,241)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 477,167 801,311
Amortization of discounts on investments 1,561 7,577
Provision for obsolete inventories -- 67,940
Stock-based compensation 655,384 200,000
Loss on disposal of equipment -- 8,707
Changes in operating assets and liabilities
Accounts receivable, net 14,184 110,884
Inventories -- (156,236)
Prepaid expenses and other assets 29,137 66,885
Accounts payable and accrued expenses 255,404 (570,591)
Deferred revenue -- 187,077
------------ ------------
Total adjustments 1,432,837 723,554
------------ ------------
Net cash used in operating activities (2,910,737) (4,780,687)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/sale of investments 295,000 300,000
Payments for patent costs and other intangible assets (332,318) (268,460)
Purchase of property and equipment (5,104) (177,377)
------------ ------------
Net cash used in investing activities (42,422) (145,837)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 16,297,430 20,236,804
------------ ------------
Net cash provided by financing activities 16,297,430 20,236,804
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS
13,344,271 15,310,280
CASH AND CASH EQUIVALENTS, beginning of period
10,273,635 6,434,901
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 23,617,906 $ 21,745,181
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business
ParkerVision, Inc. and subsidiary (the "Company" or "ParkerVision")
designs, develops and markets semiconductor technology for wireless
applications. The Company is marketing its proprietary radio-frequency
(RF) technology solutions to original equipment manufacturers (OEMs) who
manufacture third generation (3G) mobile handsets.
The Company's revenues to date were generated from the manufacture and
retail sales of wireless networking products that incorporated the
Company's proprietary technology. The Company exited its manufacturing and
retail sales activities in June 2005 in pursuit of its longer-term
business strategy of establishing relationships with OEMs for the
incorporation of its technology into products manufactured by others. To
date, the Company has not generated any significant revenue from
operations.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements of
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. Operating
results for the three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2006. All normal and recurring adjustments which, in the
opinion of management, are necessary for a fair statement of the financial
condition and results of operations have been included.
The condensed balance sheet data for the year ended December 31, 2005 was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. 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, 2005.
Certain reclassifications have been made to the 2005 consolidated interim
financial statements in order to conform to the 2006 presentation.
3. Accounting Policies
The Company changed its accounting for employee stock-based compensation
effective January 1, 2006 (see Note 5). There have been no other changes
in accounting policies from those stated in the Annual Report on Form 10-K
for the year ended December 31, 2005.
4. Consolidated Statements of Cash Flows
The Company paid no cash for income taxes or interest for the three-month
periods ended March 31, 2006 and 2005.
In March 2006, the Company recorded leasehold improvements of $437,314
with a corresponding entry to deferred rent, reflecting a tenant
improvement allowance under the lease agreement for the Company's new
corporate location (see Note 9).
5
In connection with the private placement of 2,373,355 shares of the
Company's common stock on February 3, 2006, the Company issued warrants to
purchase 593,335 shares of common stock. These warrants were recorded at
their relative fair value of approximately $2.6 million (see Note 8).
On January 3, 2006, the Company issued 6,035 shares of its common stock
valued at approximately $53,000 to a consultant as consideration for
engineering consulting services (see Note 8).
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 relative fair value of approximately $3.1 million. (see Note 8).
5. Accounting for Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based
Payment," ("FAS 123R") which establishes accounting for equity instruments
exchanged for employee services. Under the provisions of FAS 123R,
share-based compensation cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense on a
straight-line basis over the employee's requisite service period
(generally the vesting period of the equity grant). In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin No.
107 ("SAB 107") relating to FAS 123R. The Company has applied the
provisions of SAB 107 in its adoption of FAS 123R.
Prior to January 1, 2006, the Company accounted for share-based
compensation to employees in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. The Company also followed the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation",
as amended by SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure". The Company elected to adopt the modified
prospective transition method as provided by FAS 123R and, accordingly,
financial statement amounts for the prior periods presented in this Form
10-Q have not been restated to reflect the fair value method of expensing
share-based compensation. Under the modified prospective method,
share-based expense recognized after adoption includes: (a) share-based
expense for all awards granted prior to, but not yet vested as of January
1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123, as amended by SFAS 148 and (b)
share-based expense for all awards granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the
provisions of FAS 123R.
The Company did not capitalize any expense related to share-based
payments. The following table presents share-based compensation expenses
included in the Company's consolidated statements of operations for the
three months ended March 31, 2006 and 2005, respectively:
Three months ended
--------------------------------
March 31, 2006 March 31, 2005
-------------- --------------
Research and development expense $ 259,197 $ --
Sales and marketing expense 118,092 --
General and administrative expense 278,095 200,000
-------------- --------------
Total share-based expense $ 655,384 $ 200,000
============== ==============
The Company estimates the fair value of each option award on the date of
the grant using the Black-Scholes option valuation model. Estimates of
6
fair value are not intended to predict actual future events or the value
ultimately realized by persons who receive equity awards. Key input
assumptions used to estimate the fair value of stock options include the
exercise price of the award, the expected option term, expected volatility
of the Company's stock over the option's expected term, the risk-free
interest rate over the option's expected term, and the Company's expected
dividend yield. The expected term of options granted is derived from
historical data and represents the period of time that options are
expected to be outstanding. For employee options, groups of employees that
have similar historical exercise behavior are considered separately for
valuation purposes. For director and other non-employee options or
warrants, the contractual term is used as the expected term. The stock
volatility for each grant is measured using the weighted average of
historical daily price changes of the Company's common stock over the most
recent period equal to the expected option life of the grant. The
risk-free interest rate for periods equal to the expected term of the
share option is based on the U.S. Treasury yield curve in effect at the
time of the grant. The Company had no option grants for the three months
ended March 31, 2006.
The Company had previously adopted the provisions of SFAS No. 123, as
amended by SFAS No. 148, through disclosure only. The following table
illustrates the effect on the net loss and loss per share for the three
months ended March 31, 2005 as if the Company had applied the fair value
recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to
stock-based employee compensation.
Three months ended
March 31, 2005
-----------------
Net loss, as reported $ (5,504,241)
Stock-based compensation expense that would have
been included in reported net loss if the fair value
provisions of SFAS No. 123 had been applied to all
awards (1,613,836)
-----------------
Pro forma net loss $ (7,118,077)
=================
Basic and diluted net loss per share:
As reported $ (0.30)
=================
Proforma $ (0.38)
=================
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option pricing model with the following assumptions:
Three months ended
March 31, 2005
------------------------------
Expected volatility 77.36%-81.11%
Risk free interest rate 2.99%-3.72%
Expected life 5 years
Dividend yield -0%-
Stock Incentive Plans
1993 Stock Plan The Company adopted a stock plan in September 1993 (the
"1993 Plan"). As of September 10, 2003, the Company was no longer able to
issue grants under the 1993 Plan. The 1993 Plan, as amended, provided for
the grant of options and other Company stock awards to employees,
directors and consultants, not to exceed 3,500,000 shares of common stock.
The plan provided for benefits in the form of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted share
awards, bargain purchases of common stock, bonuses of common stock and
various stock benefits or cash. Options granted to employees and
consultants under the 1993 Plan vested for periods up to ten years and are
exercisable for a period of five years from the date the options vest.
Options granted to directors under the 1993 Plan were exercisable
immediately and expire ten years from the date of grant.
7
2000 Performance Equity Plan
The Company adopted a performance equity plan in July 2000 (the "2000
Plan"). The 2000 Plan provides for the grant of options and other Company
stock awards to employees, directors and consultants, not to exceed
5,000,000 shares of common stock. The plan provides for benefits in the
form of incentive stock options, nonqualified stock options, and stock
appreciation rights, restricted share awards, stock bonuses and various
stock benefits or cash. Options granted to employees and consultants under
the 2000 Plan generally vest over periods up to five years and are
exercisable for a period of up to five years from the date the options
become vested. Options granted to directors under the 2000 Plan are
generally exercisable immediately and expire seven to ten years from the
date of grant. Options to purchase 1,397,224 shares of common stock were
available for future grants under the 2000 Plan at March 31, 2006.
A summary of option activity under the 1993 and 2000 Plans as of March 31,
2006, and changes during the three-month period then ended is presented
below:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term Value ($)
---------- ---------- ---------- ----------
Outstanding at beginning of period 5,039,171 $ 21.51
Granted --
Exercised (10,000) 5.06 $ 38,380
Forfeited (24,950) 8.09
Expired (39,600) 25.42
---------- ---------- ---------- ----------
Outstanding at end of period 4,964,421 $ 21.60 4.45 years $6,443,301
========== ========== ========== ==========
Exercisable at end of period 4,332,922 $ 23.64 3.54 years $3,871,900
========== ========== ========== ==========
A summary of the status of the Company's nonvested shares as of March 31,
2006, and changes during the three months ended March 31, 2006 is
presented below:
Nonvested Shares
---------------------------------
Weighted-
Average
Grant-Date
Shares Fair Value
----------- -----------
Nonvested at January 1, 2006 628,500 $ 5.07
Granted -- --
Vested (20,800) 7.92
Forfeited -- --
----------- -----------
Nonvested at March 31, 2006 607,700 $ 4.99
=========== ===========
As of March 31, 2006, there was $2,199,343 of total unrecognized
compensation cost related to nonvested share-based compensation
arrangements granted under the 1993 and 2000 Plans. That cost is expected
to be recognized over a weighted-average period of 3.05 years. The total
fair value of shares vested during the three months ended March 31, 2006
was $164,818.
8
Non-Plan Options/Warrants
The Company has granted options and warrants outside the 1993 and 2000
Plans for employment inducements, non-employee consulting services, and
for underwriting and other services in connection with securities
offerings. Non-plan options and warrants are generally granted with
exercise prices equal to fair market value of the underlying shares at the
date of grant.
A summary of non-plan option and warrant activity as of March 31, 2006,
and changes during the three-month period then ended is presented below:
Weighted
Weighted -Average
-Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term Value ($)
------------ ------------ ------------ ------------
Outstanding at beginning of period 1,977,401 $ 30.29
Granted 593,335 8.50
Exercised -- --
Forfeited -- --
Expired -- --
------------ ------------ ------------ ------------
Outstanding at end of period 2,570,736 $ 25.26 4.95 years $ 2,982,437
============ ============ ============ ============
Exercisable at end of period 2,570,736 $ 25.26 4.95 years $ 2,982,437
============ ============ ============ ============
The weighted average fair value of non-plan warrants granted in the three
months ended March 31, 2006 was $4.38.
The fair value of each non-plan option grant was estimated on the grant
date using the Black-Scholes option pricing model with the following
assumptions:
Three months ended
March 31, 2006
-----------------------------
Expected volatility 80.33%
Risk free interest rate 4.5%
Expected life 5 years
Dividend yield -0%-
Cash received from option exercises under all share-based payment
arrangements for the three months ended March 31, 2006 was $50,580. No tax
benefit was realized for the tax deductions from option exercise of the
share-based payment arrangements for the three months ended March 31, 2006
as the benefits were fully offset by a valuation allowance.
On November 10, 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. 3 (FAS123R-3) "Transition Election Related
to Accounting for Tax Effects of Share-Based Payment Awards." The Company
has not yet elected its adoption method and consequently, in accordance
with FAS123R-3, the Company is assumed to use the long-form method to
calculate its pool of windfall tax benefits prior to making an election to
use the short-cut method. Upon exercise of options under the 1993 Plan and
the 2000 Plan, the Company issues new registered shares of its common
stock.
9
6. 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 March 31, 2006 and 2005 are 22,389,861 and 18,552,594,
respectively. Options and warrants to purchase 7,535,157 and 7,422,340
shares of common stock were outstanding at March 31, 2006 and 2005,
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.
7. Other Assets
Other assets consist of the following:
March 31, 2006
--------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
-------------- -------------- --------------
Patents and copyrights $ 12,425,325 $ 3,194,412 $ 9,230,913
Prepaid licensing fees 705,000 463,000 242,000
Deposits and other 385,328 -- 385,328
-------------- -------------- --------------
$ 13,515,653 $ 3,657,412 $ 9,858,241
============== ============== ==============
December 31, 2005
--------------------------------------------------------
Gross Carrying
Amount
(net of Accumulated
impairment) Amortization Net Value
-------------- -------------- --------------
Patents and copyrights $ 12,093,007 $ 3,036,801 $ 9,056,206
Prepaid licensing fees 705,000 415,250 289,750
Deposits and other 352,846 -- 352,846
-------------- -------------- --------------
$ 13,150,853 $ 3,452,051 $ 9,698,802
============== ============== ==============
8. Stock Authorization and Issuance
On February 3, 2006, ParkerVision completed the sale of an aggregate of
2,373,335 shares of common stock to a limited number of institutional and
other investors in a private placement transaction pursuant to offering
exemptions under the Securities Act of 1933. The shares, which represent
10.2% of the Company's outstanding common stock on an after-issued basis,
were sold at a price of $7.50 per share, for net proceeds of approximately
$16.2 million. Warrants to purchase an additional 593,335 shares of common
stock were issued in connection with the transaction for no additional
consideration. The warrants are immediately exercisable at an exercise
price of $8.50 per share and expire on February 3, 2011. Warrants may be
redeemed by the Company after February 3, 2008, at $.01 per warrant,
provided that the shares underlying the warrants are registered for resale
and the common stock traded at a volume weighted-average price equal to or
greater than 200% of the then exercise price for a prescribed period of
time. In accordance with EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock", the estimated fair value of the warrants of $2,597,396 was
classified as equity on the issuance date.
10
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 were
made in equal installments on October 3, 2005, January 2, 2006 and April
3, 2006. The total consideration of $160,000 was recorded in other current
assets and is amortized ratably over the service period, or one year. A
corresponding liability has been recorded in other accrued expenses and is
reduced as the installment payments are paid to the consultant. As of
March 31, 2006, the Company has issued a total of 14,576 shares of its
common stock, under its 2000 Performance Equity Plan, as payment under
this agreement. On April 3, 2006, the Company issued 5,092 shares of its
common stock, under its 2000 Performance Equity Plan, as payment of the
final installment under this agreement.
On March 14, 2005, ParkerVision consummated the sale of an aggregate of
2,880,000 shares of common stock to a limited number of institutional and
other investors in a private placement transaction pursuant to offering
exemptions under the Securities Act of 1933. The shares, which represented
at the time 14% of the Company's outstanding common stock on an
after-issued basis, were sold at a price of $7.50 per share, for net
proceeds of approximately $20.1 million. Warrants to purchase an
additional 720,000 shares of common stock were issued in connection with
the transaction for no additional consideration. The warrants are
immediately exercisable at an exercise price of $9.00 per share and expire
on March 10, 2010. Warrants may be redeemed by the Company after March 10,
2007, at $.01 per warrant, provided that the shares underlying the
warrants are registered for resale and the common stock traded at a volume
weighted-average price equal to or greater than 200% of the then exercise
price for a prescribed period of time. In accordance with EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock", the estimated fair value
of the warrants of $3,119,777 was classified as equity on the issuance
date.
9. Commitments and Contingencies
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.
Lease Obligations
The Company entered into a lease agreement for its new headquarters
facility in Jacksonville, Florida, pursuant to a non-cancelable lease
agreement with an estimated commencement date of June 1, 2006. The lease
currently provides for an average monthly base rental payment of $22,534
over the 65 month lease term, with an option for renewal. The lease
provides for a tenant improvement allowance of approximately $437,000
which has been recorded in the accompanying balance sheet as leasehold
improvements with a corresponding entry to deferred rent. The leasehold
improvements will be depreciated over the life of the lease and the
deferred rent will be amortized as a reduction to lease expense over the
term of the lease.
Warranty Costs
The Company's warranty costs relate to its retail products business
activities which the Company exited in June 2005. The Company warranted
its products against defects in workmanship and materials for
approximately one year. Estimated costs related to warranties were accrued
at the time of revenue recognition. For the three months ended March 31,
2005, warranty expense was $1,363.
11
A reconciliation of the changes in the aggregate product warranty
liability for the three-month periods ended March 31, 2006 and 2005 are as
follows:
Warranty Reserve
Debit (Credit)
----------------------------------------
Three months Three months
ended ended
March 31, 2006 March 31, 2005
---------------- ----------------
Balance at the beginning of the period $ (9,950) $ (4,853)
Accruals for warranties issued during the period -- (1,363)
Settlements made (in cash or in kind) during the
Period 260 --
---------------- ----------------
Balance at the end of the period $ (9,690) $ (6,216)
================ ================
10. Liquidity and Capital Resources
The Company operates in a highly competitive industry with rapidly
changing and evolving technologies and an increasing number of market
entrants. The Company's potential competitors have substantially greater
financial, technical and other resources than those of the Company. The
Company has made significant investments in developing its technologies
and products, the returns on which are dependent upon the generation of
future revenues for realization. The Company has not yet generated
sufficient revenues to offset its expenses and, thus, has utilized
proceeds from the sale of its equity securities to fund its operations.
The Company has incurred losses from operations and negative cash flows in
every year since inception and has utilized the proceeds from the sale of
its equity securities to fund operations. On February 3, 2006,
ParkerVision completed the sale of an aggregate of 2,373,335 shares of
common stock to a limited number of institutional and other investors in a
private placement for net proceeds of approximately $16.2 million.
At March 31, 2006, the Company had an accumulated deficit of approximately
$138 million and working capital of approximately $23.3 million.
Management does not expect that revenues in 2006, if any, will be
sufficient to offset the expenses from continued investment in product
development and marketing activities. Therefore, management expects
operating losses and negative cash flows to continue in 2006 and possibly
beyond.
The long-term continuation of the Company's business plans is dependent
upon generation of sufficient revenues from its technologies and 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 and/or reduce certain discretionary
spending. Failure to generate sufficient revenues, raise additional
capital and/or reduce certain discretionary spending could have a material
adverse effect on the Company's ability to achieve its intended long-term
business objectives.
11. Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154,
"Accounting Changes and Error Corrections" a replacement of APB Opinion
No. 20 and SFAS 3. SFAS 154 applies to all voluntary changes in accounting
principles and to changes required by an accounting pronouncement that do
not include explicit transition provisions. SFAS 154 requires that a
change in accounting principal be retroactively applied instead of
12
including the cumulative effect in the income statement. The correction of
an error will continue to require the restatement of financial statements.
A change in accounting estimate will continue to be accounted for in the
period of change and in subsequent periods, if necessary. SFAS 154 became
effective for fiscal years beginning after December 31, 2005. The Company
will follow the provisions of this statement in the event of a future
accounting change.
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 Month Periods Ended March 31, 2006
and 2005
General
The Company has made significant investments in developing its technologies and
products, the returns on which are dependent upon the generation of future
revenues for realization. The Company has not yet generated revenues sufficient
to offset its operating expenses and has used the proceeds from the sale of its
equity securities to fund its operations.
In June 2005, the Company exited its retail business activities which
represented the Company's sole source of revenue from continuing operations. The
Company expects to consummate initial OEM relationships in 2006 for the design
of the Company's ICs and/or technologies into mobile handsets. However, based on
the design cycle of these OEMs, the Company anticipates that revenues from the
mobile handset market in 2006, if any, will not be significant, and will not be
sufficient to offset its operating expenses. The Company intends to continue to
use its working capital to support future marketing, sales, research and
development and general operations. No assurance can be given that such
expenditures will result in revenues, new products, or technological advances or
that the Company has adequate capital to complete its products or gain market
acceptance before requiring additional capital.
Critical Accounting Policies
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, 2005 except with
regard to the Company's accounting policy for stock-based compensation expense.
13
Stock-Based Compensation Expense
Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment," ("FAS
123R") which establishes accounting for equity instruments exchanged for
employee services. Under the provisions of FAS 123R, share-based compensation
cost is measured at the grant date, based on the calculated fair value of the
award, and is recognized as an expense on a straight-line basis over the
employee's requisite service period (generally the vesting period of the equity
grant). The Company elected to adopt the modified prospective transition method
as provided by FAS 123R and, accordingly, financial statement amounts for the
prior periods presented in this Form 10-Q have not been restated to reflect the
fair value method of expensing share-based compensation. Under the modified
prospective method, share-based expense recognized after adoption includes: (a)
share-based expense for all awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value and (b) share-based expense
for all awards granted subsequent to January 1, 2006. The Company utilizes the
Black-Scholes option pricing model to estimate the fair value of employee
stock-based compensation at the date of grant. This model requires the input of
highly subjective assumptions, including expected volatility and expected option
life. Further, as required under FAS123R, the Company estimates forfeitures for
options granted which are not expected to vest. Changes in these inputs and
assumptions can materially affect the measure of estimated fair value of the
Company's stock-based compensation expense.
As of March 31, 2006, there was $2,199,343 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements. That cost is
expected to be recognized over a weighted-average period of 3.05 years.
Revenues
Product revenues for the three months ended March 31, 2005 were $171,982,
representing sales of wireless consumer products. These revenues are net of
cooperative marketing costs for the three months ended March 31, 2005 of
$29,267. The Company exited its retail product business activities in June 2005
and does not anticipate any future revenues from these retail products.
Gross Margin
The gross margin for products for the three months ended March 31, 2005 was
$(89,742). In the fourth quarter of 2004, the Company recorded a write down on
certain of its wireless product inventory to reduce it to net realizable value.
As a result, the Company sold this inventory at zero margin in the first half of
2005. The Company's negative gross margin in the first quarter of 2005 is
primarily due to a $68,000 increase in inventory reserves resulting from
performance yields on certain in process inventories tested during the first
quarter of 2005.
Research and Development Expenses
The Company's research and development expenses for the three months ended March
31, 2006 were $2,557,768 as compared to $2,921,674 for the same period in 2005.
The decrease of $363,906, or 12%, was primarily due to a reduction in personnel
costs of approximately $530,000, reduction of depreciation and amortization of
fixed and intangible assets of approximately $350,000, reductions in prototype
expenses of approximately $170,000 and reductions in engineering facility costs
of approximately $40,000, offset by increases in outside consulting fees of
approximately $490,000 and increases in share-based compensation of
approximately $259,000.
The reduction in personnel costs is due to product engineering staff reductions
in June 2005 as a result of the exit from retail activities. The exit from
retail also caused the reduction in prototype expenses and the reduction in
amortization of intangible assets due to the impairment of certain intangible
assets related to the retail business activities. In addition, the Company
experienced a decrease in depreciation expense as a result of certain
engineering equipment becoming fully depreciated during 2005. The reductions in
engineering facility costs is a result of a downsizing of the Orlando
engineering facility and a renegotiation of the lease terms for that facility in
September 2005. These reductions in cost were somewhat offset by an increase in
the use of outside engineering design services related to development of the
Company's wireless integrated circuits for the mobile handset market.
14
In addition, as a result of the adoption of FAS123R on January 1, 2006, the
Company recognized stock-based compensation of $259,000 in the three months
ended March 31, 2006. This compensation expense is related to stock options
awarded to research and development employees that were granted prior to, but
not yet fully vested as of January 1, 2006.
Marketing and Selling Expenses
Marketing and selling expenses for the three months ended March 31, 2006 were
$554,392, representing a $435,578, or 44%, reduction from marketing and selling
expenses of $989,970 for the same period in 2005. This reduction is due to staff
reductions in connection with the June 2005 retail exit, resulting in savings of
approximately $115,000, as well as a decrease in advertising and other
promotional costs related to retail activities of approximately $390,000, offset
by increases in stock-based compensation expense of approximately $118,000.
The increase in stock-based compensation expense is a result of the adoption of
FAS123R on January 1, 2006. The stock-based compensation expense for the three
months ended March 31, 2006 of $118,000 is related to stock options awarded to
sales and marketing employees that were granted prior to, but not yet fully
vested as of January 1, 2006.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2006
were $1,389,240 as compared to $1,527,739 for the same period in 2005,
representing a decrease of $138,499, or 9%. The decrease is primarily due to
decreases in personnel costs and related travel expenses of approximately
$160,000 from personnel reductions in connection with the June 2005 retail exit
as well as transfers of certain management employees to other areas of
responsibility. In addition, professional accounting fees decreased
approximately $70,000 as a result of savings due to second year efficiencies
with regard to Section 404 controls. Board compensation costs decreased
approximately $30,000 due to implementation of a new board compensation program
in June 2005 and corporate insurance costs decreased by approximately $30,000
due to savings achieved with annual insurance renewals. These cost reductions
were somewhat offset by an increase in depreciation of approximately $80,000 due
to accelerated depreciation of leasehold improvements in the Company's current
facilities in anticipation of a move to a new facility and an increase of
approximately $78,000 in stock-based compensation expense.
The increase in stock-based compensation expense is, in part, due to the
adoption of FAS123R on January 1, 2006 which resulted in stock-based
compensation expense for the three months ended March 31, 2006 of approximately
$49,000 related to stock options awarded to executive and administrative
employees that were granted prior to, but not yet fully vested as of January 1,
2006. In addition, stock-based compensation expense increased approximately
$29,000 from March 31, 2005 to the same period in 2006 due to the grant of stock
options to an outside consultant in April 2005 in connection with a consulting
agreement.
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 months ended March
31, 2006 was $157,826, as compared to $33,591 for the same period in 2005. The
increase of $124,235 for the three-month period was primarily due to an increase
in interest earned on cash and investments from the proceeds of private
placements of equity securities, offset by the continued use of cash and
investments to fund operations.
Loss and Loss per Share
The Company had a net loss of $(4,343,574) or $(0.19) per common share for the
three months ended March 31, 2006 as compared to net loss of $(5,504,241) or
$(0.30) per common share for the same period in 2005, representing a decrease in
net loss of $1,160,667 or $0.11 per common share. This decrease is primarily due
to reduced expenses resulting from the Company's June 2005 exit from its retail
activities, offset by the recognition of employee stock compensation expense in
the first quarter of 2006 due to the adoption of FAS123R.
15
Liquidity and Capital Resources
At March 31, 2006, the Company had working capital of approximately $23.3
million which represents an increase of approximately $12.5 million from working
capital of $10.8 million at December 31, 2005. This increase is due to the
proceeds from the private placement in February 2006 of approximately $16.2
million, offset by approximately $2.9 million in cash used for operating
activities and approximately $0.3 million of cash invested in intellectual
property protection in the first quarter of 2006.
The Company's future business plans call for continued investment in sales,
marketing and product development for its wireless technologies and products.
The Company's ability to generate revenues will largely depend upon the rate at
which the Company is able to secure OEM adoption of its technology and products.
The expected revenues for 2006 will not be sufficient to cover the operational
expenses of the Company for 2006. The expected continued losses and negative
cash flow will continue to be funded by the use of its available working
capital.
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
2007. 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 and/or
reduce certain discretionary spending. Failure to generate sufficient revenues,
raise additional capital and/or reduce certain discretionary spending could have
a material adverse effect on the Company's ability to achieve its intended
long-term business objectives.
Off-Balance Sheet Transactions, Arrangements and Other Relationships
As of March 31, 2006, the Company has outstanding warrants to purchase 2,455,736
shares of common stock that were issued in connection with the sale of equity
securities in various private placement transactions in 2000, 2001, 2005 and
2006. These warrants have exercise prices ranging from $8.50 to $56.66 per share
with a weighted average exercise price of $25.36 and a weighted average
remaining contractual life of approximately 5 years. The estimated fair value of
these warrants of $20,290,878 is included in shareholders' equity in the
Company's consolidated balance sheets.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of March 31, 2006 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.
16
Changes in Internal Control over Financial Reporting
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.
ITEM 1A. Risk Factors
In addition to other information in this Quarterly Report on Form 10-Q, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. As a result of the risk factors set
forth below, actual results could differ materially from those projected in any
forward-looking statements.
We have had a history of losses which may ultimately compromise our ability to
implement our business plan and continue in operations.
We have had losses in each year since our inception in 1989, and continue to
have an accumulated deficit which, at March 31, 2006, was $138 million. The net
loss for the first quarter of 2006 was $4.3 million and for fiscal 2005 was
$23.1 million. To date, our technologies and products have not produced revenues
sufficient to cover operating, research and development and overhead costs. We
also will continue to make expenditures on marketing, research and development,
pursuit of patent protection for our intellectual property and operational costs
for fulfillment of any contracts that we achieve for the sale of our products or
technologies. We expect that our revenues in the near term will not bring the
company to profitability. If we are not able to generate sufficient revenues or
we have insufficient capital resources, we will not be able to implement our
business plan and investors will suffer a loss in their investment. This may
result in a change in our business strategies.
We expect to need additional capital in the future, which if we are unable to
raise will result in our not being able to implement our business plan as
currently formulated.
Because we have had net losses and, to date, have not generated positive cash
flow from operations, we have funded our operating losses from the sale of
equity securities from time to time and the sale of our video division in 2004.
We anticipate that our business plan will continue to require significant
expenditures for research and development, patent protection, manufacturing,
marketing and general operations. Our current capital resources, including cash
of $23.6 million, are expected to sustain operations through the first half of
2007, if not longer. Thereafter, unless we increase revenues to a level that
they cover operating expenses or we reduce costs, we will require additional
capital to fund these expenses. Financing, if any, may be in the form of loans
or additional sales of equity securities. A loan or the sale of preferred stock
may result in the imposition of operational limitations and other covenants and
payment obligations, any of which may be burdensome to the Company. The sale of
equity securities will result in dilution to the current stockholders'
ownership. The long-term continuation of our business plan is dependent upon the
generation of sufficient revenues from the sale of our products, additional
funding or reducing expenses or a combination of the foregoing. The failure to
generate sufficient revenues, raise capital or reduce expenses could have a
material adverse effect on our ability to achieve our long-term business
objectives.
17
Our industry is subject to rapid technological changes which if we are unable to
match or surpass, will result in a loss of competitive advantage and market
opportunity.
Because of the rapid technological development that regularly occurs in the
microelectronics industry, we must continually devote substantial resources to
developing and improving our technology and introducing new product offerings.
For example, in fiscal year 2004 and 2005, we spent approximately $11.4 and
$10.3 million, respectively, on research and development, and we expect to
continue to spend a significant amount in this area in the future. These efforts
and expenditures are necessary to establish and increase market share and,
ultimately, to grow revenues. If another company offers better products or our
product development lags, a competitive position or market window opportunity
may be lost, and therefore our revenues or revenue potential may be adversely
affected.
If our products are not commercially accepted, our developmental investment will
be lost and our future business continuation will be impaired.
There can be no assurance that our research and development will produce
commercially viable technologies and products. If existing or new technologies
and products are not commercially accepted, the funds expended will not be
recoverable, and our competitive and financial position will be adversely
affected. In addition, perception of our business prospects will be impaired
with an adverse impact on our ability to do business and to attract capital and
employees.
If our patents and intellectual property do not provide us with the anticipated
market protections and competitive position, our business and prospects will be
impaired.
We rely on our intellectual property, including patents and patent applications,
to provide competitive advantage and protect us from theft of our intellectual
property. We believe that many of our patents are for entirely new technologies.
If the patents are not issued or issued patents are later shown not to be as
broad as currently believed, or are otherwise challenged such that some or all
of the protection is lost, we will suffer adverse effects from the loss of
competitive advantage and our ability to offer unique products and technologies.
In addition, there would be an adverse impact on the Company's financial
condition and business prospects.
If we cannot demonstrate that our technologies and products can compete in the
marketplace and are better than current competitive solutions, then we will not
be able to generate the sales we need to continue our business and our prospects
will be impaired.
We expect to face competition from chip suppliers such as RF MicroDevices,
Anadigics, Skyworks, Texas Instruments and Philips, among others. Our technology
may also face competition from other emerging approaches or new technological
advances which are under development and have not yet emerged. If our
technologies and products are not established in the market place as
improvements over current, traditional chip solutions in wireless
communications, our business prospects and financial condition will be adversely
affected.
We believe that we will rely, in large part, on key business and sales
relationships for the successful commercialization of our products, which if not
developed or maintained, will have an adverse impact on achieving market
awareness and acceptance and loss of business opportunity.
To achieve a wide market awareness and acceptance of our products, as part of
our business strategy, we will attempt to enter into a variety of business
relationships with other companies which will incorporate our components into
their products and/or market products based on our technologies. Our successful
commercialization of our products will depend in part on our ability to meet
obligations under contracts with respect to the products and related development
requirements. The failure of the business relationships will limit the
commercialization of our products which will have an adverse impact on our
business development and our ability to generate revenues and recover
development expenses.
18
We are highly dependent on Mr. Jeffrey Parker as our chief executive officer
whose services, if lost, would have an adverse impact on the leadership of the
Company and industry and investor perception about our future.
Because of Mr. Parker's position in the company and the respect he has garnered
in the industry in which we operate and from the investment community, the loss
of the services of Mr. Parker might be seen as an impediment to the execution of
our business plan. If Mr. Parker were no longer available to the company,
investors may experience an adverse impact on their investment. We do not
currently have an employment agreement with Mr. Parker. We maintain key-employee
life insurance for our benefit on Mr. Parker.
If we are unable to attract highly skilled employees we will not be able to
execute our research and development plans or provide the highly technical
services that our products require.
Our business is very specialized, and therefore it is dependent on having
skilled and specialized employees to conduct our research and development
activities, operations, marketing and support. The inability to obtain these
kinds of persons will have an adverse impact on our business development because
persons will not obtain the information or services expected in the markets and
may prevent us from successfully implementing our current business plans.
The outstanding options and warrants may affect the market price and liquidity
of the common stock.
At March 31, 2006, we had 23,348,135 shares of common stock outstanding and had
6,903,658 exercisable options and warrants for the purchase of shares of common
stock, assuming no terminations or forfeitures of such options and warrants. On
December 31, 2006 and 2007, there will be 6,646,489 and 6,827,237 respectively,
currently outstanding and exercisable options and warrants (assuming no
terminations or forfeitures). All of the underlying common stock of these
securities is registered for sale to the holder or for public resale by the
holder. The amount of common stock available for the sales may have an adverse
impact on our ability to raise capital and may affect the price and liquidity of
the common stock in the public market. In addition, the issuance of these shares
of common stock will have a dilutive effect on current stockholders' ownership.
Provisions in the certificate of the incorporation and by-laws could have
effects that conflict with the interest of stockholders.
Some provisions in our certificate of incorporation and by-laws could make it
more difficult for a third party to acquire control. For example, the board of
directors has the ability to issue preferred stock without stockholder approval,
and there are pre-notification provisions for director nominations and
submissions of proposals from stockholders to a vote by all the stockholders
under the by-laws. Florida law also has anti-takeover provisions in its
corporate statute.
We have a shareholder protection rights plan that may delay or discourage
someone from making an offer to purchase the company without prior consultation
with the board of directors and management which may conflict with the interests
of some of the stockholders.
On November 17, 2005, the board of directors adopted a shareholder protection
rights plan which called for the issuance, on November 29, 2005, as a dividend,
rights to acquire fractional shares of preferred stock. The rights are attached
to the shares of common stock and transfer with them. In the future the rights
may become exchangeable for shares of preferred stock with various provisions
that may discourage a takeover bid. Additionally, the rights have what are known
as "flip-in" and "flip-over" provisions that could make any acquisition of the
company more costly. The principal objective of the plan is to cause someone
interested in acquiring the company to negotiate with the board of directors
rather than launch an unsolicited bid. This plan may limit, prevent, or
discourage a takeover offer that some stockholders may find more advantageous
than a negotiated transaction. A negotiated transaction may not be in the best
interests of the stockholders.
19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 sold other discounts to market price registration terms of exercise or
security afforded to purchasers claimed conversion
- -------------- ----------- ------------- ---------------------------------- -------------- --------------------------
2/3/06 Common 2,373,335 Received net proceeds of 4(2) n/a
Stock $16.2 million
2/3/06 Warrant 593,335 Option granted - no 4(2) Exercisable for five
consideration received by years from the date of
Company until exercised the grant at an exercise
price of $8.50 per share
1/3/06 Common
Stock 6,035 Services valued at $53,333 4(2) n/a
ITEM 3. Defaults Upon Senior Securities. Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
31.1 Section 302 Certification of Jeffrey L. Parker, CEO
31.2 Section 302 Certification of Cynthia Poehlman, CFO
32.1 Section 906 Certification
(b) Reports on Form 8-K.
1. Form 8-K, dated March 7, 2006. Item 2.02 - Results of Operations
and Financial Condition. Report of ParkerVision, Inc. releasing
earnings for the 2005 fourth quarter and year end results. Item 9.01
- Financial Statements and Exhibits. Press release of the Company
dated March 7, 2006.
2. Form 8-K, dated May 2, 2006. Item 1.01 - Entry into a Material
Definitive Agreement. Report of Performance Management Plan approved
by Compensation Committee of ParkerVision, Inc. Item 9.01 -
Financial Statements and Exhibits. Performance Management Plan, NEO
Award Opportunity Chart.
20
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
May 10, 2006 By: /s/Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
May 10, 2006 By: /s/Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
21