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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-K
(Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
For the transition period from ________to__________
Commission file number 0-22904
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PARKERVISION, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2971472
(State of Incorporation) (I.R.S. Employer ID No.)
8493 BAYMEADOWS WAY
JACKSONVILLE, FLORIDA 32256
(904) 737-1367
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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 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 if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( ).
As of March 23, 2001, the aggregate market value of the Issuer's Common Stock,
$.01 par value, held by non-affiliates of the Issuer was approximately
$243,167,239 (based upon $26.6875 per share closing price on that date, as
reported by The Nasdaq National Market).
As of March 23, 2001, 13,713,163 shares of the Issuer's Common Stock were
outstanding.
Documents incorporated by reference: Portions of the definitive Proxy Statement
to be delivered to stockholders in connection with the 2001 Annual Meeting are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
ParkerVision, Inc. was incorporated under the laws of the state of Florida on
August 22, 1989. ParkerVision's operations consist of two operating segments -
the Video Products Division ("Video Division") and the Wireless Technology
Division ("Wireless Division"). All references herein to the "Company" refer to
ParkerVision, Inc. and its wholly-owned subsidiary.
Video Division
- --------------
The Video Division is engaged in the design, development and marketing of
automated video camera control systems, marketed under the tradename
CameraMan(R) and automated production systems, marketed under the tradename PVTV
Studio(TM). In addition, the Company provides training, support and other
services related to these products. The Company sells its video products and
education-based PVTV Studio(TM) systems primarily through audiovisual dealers
and other equipment manufacturers throughout the United States as well as in
Canada, Latin America and Asia. The Company primarily sells its high-end PVTV
Studio(TM) systems direct to broadcasters in the United States and Canada.
The Company's Video Division revenue percentages by product are as follows:
Product/Service 2000 1999 1998
------------------------------ -------- -------- --------
CameraMan(R)systems 59% 89% 97%
PVTV Studio(TM)systems 36% 10% 3%
Training and other services 3% 1% 0%
Recurring support & other 2% 0% 0%
The CameraMan(R) systems were initially developed to allow the creation of
professional-quality video communication by non-professional video users. These
systems include a proprietary "tracking" technology that allows a video user to
appear in the video while also controlling the camera. The Company markets these
systems to certain educational and videoconferencing segments of the commercial
market where audiovisual solutions have become increasingly popular for
communication, training, presentation, instructional and educational needs. The
Company offers its CameraMan(R) products in a variety of application-specific
packages designed for the distance education and videoconferencing markets. In
addition, in 2000, the Company introduced a high-end digital CameraMan(R) system
targeted toward the broadcast and professional video user. Since 1995, the
Company has produced camera products for Vtel Corporation ("VTEL") under an
Original Equipment Manufacturer ("OEM") agreement.
The Company's PVTV Studio(TM) systems were designed specifically to meet the
needs of studio production markets. The PVTV Studio(TM) product line includes a
professional, broadcast quality video production system that integrates video,
audio, machine control and camera control functions into an intelligent
single-operator station. The system was designed to allow organizations to
economize their resources by maximizing their production capabilities. A single
operator can control, in parallel, the production functions that traditionally
require as many as six to twelve individuals to operate.
2
The Company installed three PVTV Studio(TM) beta sites in 1998 in various
vertical markets and worked extensively with its beta sites during 1998 to
increase the technological capabilities of its system. Also during 1998, the
Company focused on filing patents to protect its proprietary technologies
related to the PVTV Studio(TM) system.
The Company installed several "pilot" sites in 1999 within several vertical
markets including broadcast, corporate and education. In the broadcast sector,
this effort allowed for the integration of widely used third party equipment and
products thus providing the Company with the opportunity to leverage the
installed base of existing equipment into its sales efforts. In addition, in
1999, the Company introduced a digital version of its PVTV StudioNEWS(TM)
package and an education-based version marketed under the tradename PVTV
Learning(TM).
During 2000, the Company continued to enhance the features, functionality and
third party interfaces of its PVTV Studio(TM) systems. During 2000, the Company
received a purchase contract from The Ackerley Group ("Ackerley"), a broadcast
ownership group, for the purchase of PVTV Studio(TM) systems for several of
Ackerley's news stations. Substantially all of these sites were completed in
2000 resulting in approximately $4,700,000 in revenue from system sales and
services. Ackerley accounted for approximately 30% of the Company's revenues in
2000.
Wireless Division
- -----------------
The Company's Wireless Division is engaged in the development and initial
commercialization of its Direct2Data(TM), or D2D(TM), technology. This
technology is a wireless Direct Conversion radio frequency ("RF") technology
that the Company believes will reduce the complexity, cost, size, and power
consumption of radio tranceivers when compared with Super Heterodyne-based radio
transceivers which the Company believes is currently the most widely deployed
radio circuit architecture utilized in wireless communications. The Company is
targeting applications such as cellular telephones and wireless local area
networks ("WLAN"), among others. The Company's Wireless Division is in the early
stages of commercialization and has not generated any revenue to date.
The Company believes its D2D(TM) technology represents a completely new radio
electronic circuit architecture that has the capability of replacing traditional
RF heterodyne architectures. In 1998, the Company announced that its D2D(TM)
technology allowed for a single-step direct conversion of an incoming modulated
RF carrier signal directly to its baseband data, eliminating the need for the RF
heterodyne architecture in RF receiver design. The Company later determined that
its D2D(TM) technology could be applied to RF transmitter use for producing
direct up-conversion for on-channel RF carriers. The Company's focus has been on
the creation of zero intermediate frequency ("zero IF") radio system
applications based on the D2D(TM) direct conversion technology. Zero IF radios
eliminate all of the intermediate frequency stages currently utilized in broadly
deployed multi-step conversion heterodyne transmitters and receivers.
The Company believes the D2D(TM) architecture can be implemented in a wide range
of semiconductor processes allowing the opportunity to integrate other system
functions such as amplifiers, local oscillators, and baseband filters onto the
same IC as the RF up and down-conversion to create highly integrated RF
receivers, transmitters or transceivers. The Company believes its novel D2D(TM)
technology represents a significant improvement in the development of radio
tranceivers as it will
3
reduce complexity, size, power consumption and cost of many wireless
communication systems. The Company also believes that for certain applications
the technology improves performance when compared to the traditional approaches,
as it simplifies the handling of the data extraction (receiver) process or the
data transmission (transmitter) process of an RF carrier.
The performance of the Company's D2D(TM) technology was independently confirmed
by Questar InfoComm, Inc. ("Questar"), a subsidiary of Questar Corporation,
which signed a letter of intent to jointly develop products utilizing the
Company's D2D(TM) technology in 1998. Questar also purchased $5 million in
ParkerVision common stock in a private placement transaction in December 1998.
The Company is not currently in active dialog or development activities with
Questar on the development of products.
During 1998 and 1999, the Company focused much of its efforts on filing patents
to protect its intellectual property and continuing to develop technology
enhancements. The Company's development efforts in the second half of 1999
became focused on verifying the applicability of its D2D(TM) technology to
specific industry standards-based applications including the IEEE 802.11b WLAN
standard, GSM cellular application, CDMA IS-95 cellular application and the
Bluetooth wireless personal area network standard. Although the Company believes
the technology to be applicable to all of these wireless standards, the Company
is currently in active development of D2D(TM) tranceivers for application to
2.4GHz IEEE 802.11b and 5.0 GHz IEEE 802.11a standards and CDMA IS-95/2000 1X/
and analog AMPs cellular standards. The Company expects to expand its
development to additional industry standards over time in the future.
In 1999, the Company completed the development of an IEEE 802.11b WLAN
demonstrator that demonstrates several of the technological breakthroughs made
possible by the Company's D2D(TM) technology. The Company also entered into a
licensing agreement with Symbol Technologies, Inc. ("Symbol"), a leading
provider of mobile data management systems and services for WLAN products. The
agreement calls for D2D(TM) to be incorporated into the majority of Symbol's
future WLAN products and for Symbol to be the sole licensee in the WLAN
marketplace. Under the terms of the agreement, the Company received prepaid
royalties and will receive additional payments over time for the sale by Symbol
of products including the D2D(TM) technology. The Company continues to work with
Symbol on the development of WLAN IC's for Symbol's products. Under the terms of
the agreement with Symbol, the Company preserved its rights to develop and
market its own D2D(TM)- based tranceivers for the WLAN marketplace as well as
contract with others to incorporate into their own IC's implementations of the
D2D(TM) technology developed by the Company.
The Company also completed a D2D(TM)-based transmitter demonstration platform
that the Company believes meets or exceeds the requirements of the CDMA IS-95
standard. Early in 2000, the Company announced that the identical D2D(TM)
transmitter hardware was utilized to complete a demonstrator platform that the
Company believes exceeds the GSM standard as well. CDMA is the fastest growing
digital cellular standard in several regions of the world and is considered to
be the most demanding of the current digital cellular standards in terms of
radio transceiver performance requirements. GSM is currently the world's most
popular digital cellular communications standard. The Company also announced its
plans to develop D2D(TM) -based receiver platforms, which meet or exceed both
the CDMA IS-95 and GSM standards. The Company believes that a CDMA IS-95
compliant receiver prototype that is built using the D2D(TM) technology will be
complete in 2001 and that the Company will complete the design of its first CDMA
IC's in late 2001. CDMA is currently the fastest growing cellular communications
standard.
4
In March 2000, the Company acquired substantially all of the assets of Signal
Technologies, Inc., a privately owned, Orlando, Florida based RF design firm
which had previously provided application engineering and design services to the
Company for the D2D(TM) technology. The assets of STI were acquired for
approximately $2 million in convertible preferred stock. In addition, the
Company employed all of the former STI employees and entered into employment
agreements with several key employees. During 2000, the Company began expanding
its engineering personnel in its Orlando facility and has plans to continue
increasing its Orlando engineering staff in 2001.
In addition to it's Orlando based design center, the Company maintained design
centers in California, Utah and Jacksonville, Florida during 2000 for
application engineering and design of WLAN and CDMA based applications of its
wireless technology. In 2001, the Company determined that to achieve the best
efficiencies in growing its wireless design staff that it would expand the
engineering personnel in its Orlando and Jacksonville facilities while closing
its Utah facility which consisted of a small staff of four engineers. In
addition, in 2001, the Company moved a portion of its engineering activities
from its California center to Orlando and Jacksonville thereby reducing the
required resources in its California facility.
Early in 2001, the Company completed its first highly integrated 2.4 GHz IEEE
802.11b WLAN D2D(TM)-based RF transceiver IC's which are currently undergoing
testing. The Company believes that it will begin to demonstrate WLAN tranceivers
to select prospective customers beginning in the first half of 2001. The Company
also believes that it will require further design modifications to its first
WLAN IC's and that achieving a commercially viable product will require
iterative design modifications as the Company receives feedback from potential
customers and conducts extensive testing on its first WLAN IC's. The Company
believes that it is very common for multiple iterations of IC's, especially
mixed signal RF IC's, to occur before a commercially shippable product is
achieved.
Early in 2001, the Company entered into an agreement with PrairieComm, Inc.
("PrairieComm"), a cellular chipset and embedded software developer, to jointly
develop new chipsets using D2D(TM)-based RF transceivers and PrairieComm
baseband processors for wireless devices, including cellular telephones. The
Company also entered into an agreement with Texas Instruments Incorporated
("TI") for the development of interfaces between the Company's transceiver IC's
and TI's baseband processors in the areas of wireless networking and cellular
applications. In addition, TI has agreed to manufacture D2D(TM)-based IC's for
the Company using various TI semiconductor processes. TI also purchased $2.5
million in the Company's equity securities in a private placement transaction.
PRODUCTS
- --------
Video Division
- --------------
The Company's patented and patents-pending CameraMan(R) automated video camera
control systems utilize a portable, computerized base which pans and tilts
simultaneously to achieve fluid motion, into which is integrated a professional
quality single-chip or three-chip imaging camera that provides the system camera
control functions, such as auto-focus and auto-image control. The base unit also
includes a proprietary automatic tracking capability. Additional peripheral
devices are available to control the automatic tracking functions and to
remotely control base unit and camera functions. CameraMan(R) camera products
are offered in a variety of application-specific packages.
5
For the distance education market, the Company offers Presenter and Student
Camera systems. The presenter system allows a presenter, or instructor, to wear
a tracking device with built-in microphone, so that the camera will
automatically follow the presenter's movements throughout a room. The student
system includes a student response feature allowing students to "raise their
hands" electronically by pressing a locator button on a microphone. The camera
will then automatically recall the student's location thereby providing
educators and students with an "eye to eye" level of communication. For the
videoconferencing market, the Company offers a Personal Locator system. This
system allows each videoconferencing participant to program his or her personal
location preset and then recall that preset at the touch of a button on that
individual's keypad. The system also includes a chairperson keypad with "system
lockout" functionality for meeting control. For general-purpose commercial
applications where a high-quality, full-featured pan/tilt system is desired but
tracking capability is not needed, the Company offers a General Pan/Tilt system.
This system is field upgradable to all other application-specific systems and,
as a result, is easily adaptable to distance education and videoconferencing
applications.
All of the Company's single-chip application-specific packages are available in
a VTEL-labeled product line. The basic difference between the VTEL-labeled
products and the Company's other products is the ability for the VTEL products
to be factory integrated with select VTEL equipment.
During 2000, the Company introduced three-chip digital versions of its CameraMan
product line. The digital CameraMan products are available in the
application-specific packages including General Pan/Tilt, Presenter and Student
Camera Systems. In addition, digital CamerMan systems are packaged with PVTV
Studio NEWS and Learning systems and target the higher-end video user including
broadcasters. Digital CameraMan systems are available in standard 4:3 aspect
ratios and switchable 4:3/16:9 formats ready for wide-screen applications.
The Company's analog automated camera control systems have list prices ranging
from approximately $5,000 to $10,000 for a single-chip system and $19,000 to
$30,000 for an analog three-chip system. The Company's digital three-chip
CameraMan systems have list prices ranging from approximately $35,000 to
$50,000.
The Company's patents-pending PVTV Studio(TM) system provides fully integrated
PC-based production systems with unique functionality. These systems often
incorporate two or more CameraMan(R) single-chip or three-chip analog or digital
camera systems with additional audio, video and machine control functions, a
graphical user interface and software based on a Microsoft(R) operating system.
A proprietary Transition Macro(TM) technology allows the system operator to
build, revise and preview a production in storyboard fashion and then run the
entire live or live-to-tape production with the press of one button. These
systems also allow the operator to manually pause or interrupt the automated
production, as needed, to insert changes. In addition to CameraMan(R) cameras,
the PVTV Studio(TM) systems can work with other video sources such as satellite
feeds, compression/decompression devices and manually operated or robotic
cameras produced by other manufacturers.
The PVTV Studio(TM) product line is currently available in two
application-specific packages: PVTV Studio NEWS(TM) targeted for broadcast and
cable production markets and PVTV Learning Studio(TM) targeted at educational
environments including high schools, colleges and universities.
6
The PVTV Studio NEWS(TM) system is a switchable 4:3/16:9 aspect ratio digital
production system that adds proprietary functionality such as Transition
Macro(TM) technology that allows for "event driven" automation for one or two
person "live" production control. Rundown Converter(TM) technology is also
provided to integrate News Automation Systems such as AVID's iNEWS, Associated
Press's News Center or ENPS and others to directly program the PVTV Studio NEWS
system for a seamless newsroom work flow process. In addition, the system allows
for dynamic changes such as adding, deleting or moving stories as required
including the insertion of late breaking news in a live broadcast environment.
The list price for a PVTV Studio NEWS(TM) system ranges from $290,000 to
$450,000 depending on selected options.
The PVTV Learning Studio(TM) is a baseline "value" priced offering for the
education market. The system package includes a 8 video input, 3-D digital video
effect, 15 audio input and 6 control port production studio with Script
Viewer(TM) teleprompting system, Graphic Center(TM) character generator system
and two digital CameraMan 4:3 aspect ratio, 18x zoom lens cameras. The system
also comes packaged with a comprehensive curriculum with teacher manual, notes,
quizzes, tests and 30 student workbooks. As an option, the system can also be
purchased with on-line CD-ROM and Internet based tutorials and an "advanced"
curriculum set. The system package is a single-source all digital production
solution that facilitates the specification, design and procurement process for
the customer. The PVTV Learning Studio(TM) package for the education market
segment is priced starting at $175,000.
The PVTV(TM) product line includes various package configurations including
components that provide additional functionality. These components include the
ScriptViewer(TM), Shot Director(TM) and CameraMan(R) camera systems. The
ScriptViewer(TM) system is an automated teleprompter system that integrates with
News Automation Systems and PVTV Studio NEWS(TM). The Shot Director(TM) is a
multi-camera joystick controller which is compatible with single-chip analog and
three-chip analog and digital CameraMan(R) camera systems and provides real-time
camera control and setup configuration (Camera Control Unit (CCU) setup for
3-CCD cameras) functionality for up to sixteen CameraMan(R) cameras. The Shot
Director(TM) is also offered as a stand-alone system for use with CameraMan(R)
cameras.
In 2001 the Company plans to introduce scalable versions of the digital PVTV
Studio NEWS(TM) product line and also plans to launch the PVTV WebSTATION(TM)
for Internet streaming broadcast applications. The Company believes its 2001
product line will address expanded functional requirements for broadcast
networks, local affiliates and cable channels that produce news as well as
address functional and price point targets to enable operating efficiencies with
new startup opportunities for Internet-only webcasters.
The new PVTV WebSTATION(TM) for News is a patent-pending system to be sold as an
integrated solution with PVTV Studio NEWS(TM) or stand-alone for traditional
production environments. The system allows for automatic editing of show
elements for on-demand access, automatic links of advertising to specific show
elements, on-line viewer assembly of customized newscasts and the linkage of
graphics, data extended play segments, polling data and URLs by show elements.
The graphical user interface of the PVTV WebSTATION viewer is designed to
emulate an enhanced multimedia television.
7
Wireless Division
- -----------------
The Company is currently focused on developing its own IC's for application to
the 802.11(b) and (a) standards as well as IS-95 and CDMA 2000 1X cellular
standards. The initial application for which the Company believes it will
deliver its first commercially viable IC's is for the WLAN 802.11b standard. The
Company believes the D2D(TM) architecture will allow manufacturers to reduce
component costs, reduce power consumption and simplify design and manufacturing
of WLAN products for enterprise, consumer and other vertical markets. The
Company anticipates that it will begin demonstrations with reference designs and
initial sampling of its first WLAN IC's to select targeted OEM customers during
the first half of 2001. The Company has received its first WLAN IC from
fabrication and is currently testing the performance of the IC. The Company is
also developing a CDMA IS-95/2000-1X transceiver which also includes analog AMPs
for use in mobile handset applications. The first IC's for CDMA are expected to
be fabricated in the second half of 2001.
The Company also plans to pursue strategic relationships with companies that
produce IC's which complement the Company's IC's and early in 2001 has entered
such relationships with PrairieComm and Texas Instruments.
MARKETING AND SALES
- -------------------
Video Division
- --------------
The CameraMan(R) video camera control systems and the PVTV(TM) automated
production systems are marketed to educators, corporate professionals and
broadcasters who use audiovisual, telecommunications and production systems in
distance education, videoconferencing, and live or live-to-tape broadcasts. In
the education market, the Company targets universities, colleges, primary
schools, hospitals/clinics, and corporate/government training facilities. The
Company believes telecommunications technologies are a trend in education
resulting in teaching programs which are more timely, more accessible, and more
cost-effective per student. In the videoconferencing market, the Company targets
corporations who are utilizing on-site videoconferencing rooms for long-distance
training and communication among corporate personnel, customers, clients and
suppliers. In the broadcast production market, the Company targets broadcast and
cable networks/stations, independent studios and corporate, education,
healthcare, religious and government studios.
System sales are directed by an internal sales staff and a network of authorized
audiovisual product dealers, telecommunication dealers and systems integrators
who design and specify audiovisual and production equipment of various
manufacturers. In addition, the Company maintains national account sales
arrangements, such as the program with VTEL, for specific applications and
targeted commercial markets. The majority of the Company's sales to date have
been generated through its authorized dealers, primarily located in the United
States. Since 1997, the Company has been expanding its audiovisual dealer
network to include the international market, with a focus on Asia. Overseas
sales, however, have not represented a significant portion of the Company's
revenues to date. The Company also sells the majority of its automated
production systems directly through its own sales force, primarily in the
broadcast and cable segment. In addition to system sales, the Company also
provides training and annual service and support contracts for its automated
production systems. These services are supported primarily by internal trainers,
project managers and support personnel.
8
The Company currently supports its distribution channels with marketing programs
to promote its products. These include targeted trade advertising, direct mail
campaigns, lead generation/fulfillment, tradeshow attendance and live
demonstration facilities. In addition, the Company provides training of its
dealers' and national accounts' sales, support and installation personnel.
The Company's revenue percentages by distribution channel are as follows:
Distribution Channel 2000 1999 1998
------------------------------ -------- -------- --------
Direct 40% 10% 0%
National Resellers 38% 53% 50%
OEM Customers 16% 29% 39%
International Resellers 6% 8% 8%
VTEL accounted for approximately 16%, 29% and 35% of the Company's revenues in
2000, 1999 and 1998, respectively. The Ackerley Group, a broadcast ownership
group, accounted for approximately 30% of the Company's revenues in 2000. No
other customer accounted for more that 10% of the Company's revenues in 1999 or
1998.
Wireless Division
- -----------------
The Company began its initial commercialization of its wireless technology by
focusing its efforts on commercialization through license arrangements with
third parties. This resulted in a licensing arrangement with Symbol for wireless
LAN. While the Company may in the future enter into new licensing arrangements
for other market segments, the Company is currently focused on producing and
selling its own IC's to product manufacturers in targeted markets.
In the WLAN marketplace the Company's current plans are to sell IC's directly to
OEM's who manufacture and sell products including WLAN Network Interface Cards
("NIC's") and Access Points ("AP's"). The Company has started building a staff
of sales and marketing personnel for WLAN sales. This includes support staff for
creating reference designs of the Company's WLAN IC's for use with other
complimentary IC's to create complete NIC's and AP's as well as sales and
marketing staff to build relationships with OEM's that the company plans on
targeting for sales of its WLAN IC's.
The Company may also pursue strategic relationships with other companies that
produce complimentary IC's such as baseband processors and power amplifiers. The
Company has entered into a relationship with PrairieComm to develop interfaces
between the Company's cellular IC's and PrairieComm's baseband processor IC's.
The initial collaborative efforts with PrairieComm will be focused on CDMA
applications. Additionally, the Company entered into a relationship with Texas
Instruments with an initial focus on developing interfaces between the Company's
transceiver IC's and TI's baseband processors in the areas of wireless
networking and cellular applications.
In the cellular marketplace, the Company currently plans on targeting OEM's of
handsets and other mobile devices that are used in conjunction with cellular
wide area networks. The Company is likely to initially target selling its
cellular IC's directly to OEM's that are targeted as customers of the companies
with which the Company has strategic product development relationships, such as
PrairieComm and Texas Instruments. It is also likely that the Company will
develop over time its own set of targeted OEM's for the cellular and WLAN
marketplace.
9
COMPETITION
- -----------
Video Division
- --------------
The videoconferencing industry, which includes distance education, is highly
competitive. The Company is aware of certain other companies that have
commercialized or developed technologies and products, which are competitive
with certain functions of the CameraMan(R), automated camera control systems.
Several manufacturers of pan/tilt heads compete with the Company's camera
systems. Some of these pan/tilt heads have limited preset location capabilities,
but they offer no tracking capabilities and must be operated manually. Some of
the above mentioned products sell for more than the CameraMan(R) camera system
while others sell at prices similar to, or less than, that of the CameraMan(R)
system, but offer limited functions. Both Canon and Sony offer systems with
certain automatic tracking capabilities. The Canon system requires integration
of third party software and a personal computer with specific video hardware in
order to perform certain tracking functions. The Sony system offers a
visual/color-tracking technology embodied within their camera. While the Canon
and Sony systems are offered at prices similar to, or less than, the
CameraMan(R) system, the Company believes these systems have a significantly
lower level of performance than the CameraMan(R) system and do not have the
application-specific flexibility that is incorporated with the Company's
products. The Company believes that it competes principally on the basis of the
capabilities of the patented and patent-pending CameraMan(R) camera system, ease
of system application, and system flexibility.
The studio production industry is also highly competitive. Grass Valley Group,
Sony Corporation, Panasonic Corporation, Ross Video, and E-Studio Live, among
others, offer video switchers and various other products for studio
environments. A traditional audio/video production environment involves the
coordination of multiple operators who independently operate various pieces of
equipment in parallel to achieve audio, video, machine control and camera
control functions. The Company is not aware of any competitors who currently
offer a system solution that integrates audio, video, machine control and camera
control through a single interface and provides the technology to allow these
functions to operate automatically and in parallel. In addition, the Company is
not aware of any competitors who currently offer a level of automation with
integration to news automation systems. The Company intends to compete based on
the acquisition of patents on its proprietary patents-pending technology and
continued enhancements of its system to offer users more automation and
functionality than its competitors.
The Internet production environment is in its infancy awaiting the "broadband"
market. Broadband is defined as connections above the traditional 56 kbps
modems. It includes ISDN, T1, DSL and Cable modem connections. ParkerVision's
PVTV WebSTATION is targeted at this "broadband" market. In conjunction with PVTV
Studio NEWS, the Company believes its products offer operational efficiencies
which will be required by both broadcasters and webcasters to successfully
produce and distribute content on the Internet cost effectively while the market
matures. The Company intends to compete on its proprietary patent-pending
technologies and continued enhancements of its system to offer users more
automation and functionality than its competitors.
Many of the Company's competitors, in both the videoconferencing and studio
production industries, are well-established, have substantially greater
financial and other resources than the Company, have established reputations for
success in the development, sale and service of products, and have significant
advertising budgets to permit them to implement extensive advertising and
promotional campaigns in response to competitors. Certain of these competitors
dominate their respective industries and have the financial resources necessary
to enable them to withstand substantial price
10
competition, which is expected to increase, and downturns in the markets for
communication products.
Wireless Division
- -----------------
The Company intends to compete in the wireless industry based on the unique
attributes of its patent-issued and patent-pending D2D(TM) technology which the
Company believes will provide one or more of the attributes of lower cost,
smaller size, lower power consumption and better performance than other
technologies and approaches of which the Company is aware. The Company believes
that the competing approaches are either traditional Super Heterodyne multi-step
up and down-conversion based transceivers or direct conversion transceivers
which are fundamentally based on utilizing more traditional devices to achieve
the Direct Conversion function instead of the Company's patented and
patent-pending approach. Although the Company expects to compete in this market
on the basis of its patented technology, it is possible that competitors will
attempt and be successful at finding alternative solutions or will develop
technology with benefits that are equivalent to or superior to the benefits of
the Company's technology.
The Company believes its wireless technology represents a significant
advancement in the approach to processing RF carrier signals in the direct
up-conversion (transmitter) and down-conversion (receiver) of the RF carrier to
the base band analog data waveform. The Company believes that one primary source
of competition will be from older technological solutions which designers and
manufacturers are currently using and about which they are knowledgeable. The
Company further believes that other developers of RF IC's will develop and
introduce their own direct conversion transceiver IC's which will be another
source of competition. The Company also expects competition to arise from other
RF technologies that are emerging or currently under development that may
provide equivalent or superior benefits to the Company's technology.
Several wireless companies have announced the development of direct conversion
or near direct conversion products including transceivers for use in GSM
cellular applications, Bluetooth standard applications and WLAN applications.
The Company believes several of these applications do not represent single-step
direct conversion like the Company's D2D(TM) technology, but rather represent
architectures that employ a low IF or other variation on traditional
heterodyne-based up/down conversion architectures. In some cases, the Company
does not have sufficient information to determine the approach these competitors
have taken in their direct conversion products. At this time, the Company
believes that it has the only direct conversion approach to date that is not
fundamentally based on previous up and down-conversion devices and circuits, the
most common being the heterodyne-based mixer or variants of such mixers.
PRODUCTION AND SUPPLY
- ---------------------
Video Division
- --------------
The Company engages in assembly operations for its automated video camera
control and production systems at its facility in Jacksonville, Florida. The
Company's operations involve the inspection of each component, assembly of the
system's electronic circuitry and other components, a series of quality
specification measurements, and various other computer, visual and physical
tests, including product field testing to certify final performance
specifications. The Company believes that it has sufficient production capacity
to satisfy increased demand for these systems for the foreseeable future. The
11
Company obtains all of its component parts, including standard electronic
components and specially designed components, from third-party manufacturers.
The Company currently purchases all of its requirements of specially designed
component parts from single-source suppliers. The Company owns the design and
dies for such components and believes that alternative sources of supply for
such components are available. In addition, the Company purchases the camera
modules for its automated camera systems and several of the hardware components
for its automated production systems from single-source suppliers. Alternative
sources of supply would require modifications to existing systems. The Company
maintains blanket orders and/or purchase contracts with these suppliers. The
Company purchases other system components pursuant to purchase orders placed
from time to time in the ordinary course of business.
For the years ended December 31, 2000, 1999 and 1998, one supplier accounted for
approximately 20%, 26% and 18%, respectively of the Company's component
purchases. This supplier is the single-source supplier of the Company's camera
modules for its automated camera systems. No other supplier accounted for more
than 10% of the Company's component purchases in 2000, 1999 or 1998.
At December 31, 2000, the Company had commitments to purchase camera modules and
other parts totaling approximately $579,000 through 2001. The Company is
substantially dependent on the ability of its suppliers, among other things, to
satisfy performance and quality specifications and dedicate sufficient
production capacity for components within scheduled delivery times. Failure or
delay by the Company's suppliers in supplying necessary components to the
Company would adversely affect the Company's ability to obtain and deliver
products on a timely and competitive basis. The Company endeavors to mitigate
the potential adverse effect of supply interruptions by carefully qualifying
vendors on the basis of quality and dependability, and by maintaining an
inventory of certain components, but there can be no assurances that such
components will be readily available when needed.
The Company's sales cycle for its camera and studio products is estimated to be
from one to eighteen months. The period from execution of a customer's purchase
order to delivery of a CameraMan(R) camera system is typically one to four
weeks. The period from execution of a customer's purchase contract to delivery
and installation for a studio system can range from three weeks to six months,
depending upon peripheral equipment requirements and the readiness of the
customer's site. The Company attempts to forecast orders and to purchase long
lead-time components in advance of receipt of purchase orders to permit it to
provide deliveries of completed systems within its standard delivery period. At
December 31, 2000, the Company maintained an inventory of standard electronic
and other system components of $2,970,724. Substantially all of the Company's
systems are delivered to customers by common carrier.
The Company offers a one-year limited warranty on its products covering defects
in workmanship and materials and software bugs. During the warranty period the
Company will replace parts and make repairs to system components at its expense.
The Company records a reserve for future warranty costs at the time of sale.
Extended support and service contracts are offered to the customer to cover
software support and upgrades for the PVTV Studio systems. In addition, extended
hardware maintenance contracts are offered on the Company's camera and studio
products. The revenues from all extended support contracts are recognized
ratably over the service period.
12
Wireless Division
- -----------------
The Company plans to utilize semiconductor foundries for the production of RF
IC's. Early in 2001, the Company entered into an agreement with TI for the
production of its IC's using various TI semiconductor processes. The Company
will be substantially dependent upon these foundries to satisfy performance and
quality specifications and dedicate sufficient production capacity for IC's
within scheduled delivery times. Failure or delay by the foundries in supplying
IC's to the Company, or failure or delay by the foundries in meeting the
performance or quality specifications would adversely affect the Company's
ability to obtain and deliver such IC's on a timely and competitive basis. The
Company endeavors to mitigate the potential adverse effect of supply
interruptions by carefully qualifying foundries on the basis of quality and
dependability.
PATENTS AND TRADEMARKS
- ----------------------
The Company currently holds fifteen United States utility patents, seven foreign
utility patents, two pending United States utility patent applications, and six
foreign utility patent applications covering certain tracking functions and
methods for controlling the field of view in an automatic tracking camera
system. The Company currently holds four United States utility patent
applications and two United States provisional patent applications relating to
its automated video production systems. The Company currently holds four United
States utility patents, thirty-nine United States utility patent applications,
nineteen United States provisional patent applications, twelve Patent
Cooperation Treaty ("PCT") patent applications, five Japanese utility patent
applications, and three Taiwanese utility patent applications relating to its
wireless technology. The Company currently holds two United States utility
patent applications, one United States provisional patent application, and one
PCT patent application covering technology in other areas. The economic life of
the Company's patents ranges from five to twenty years.
The Company promotes its camera, video production and wireless technologies
under the United States registered trademarks ParkerVision(R), CameraMan(R), and
the Three Triangles Logo. The Company currently holds United States trademark
and service mark applications for the marks D2D, DIRECT2DATA, and DIRECT
CONVERSION WITHOUT THE COMPROMISES, and a United States trademark application
for the mark HARDWAVE. The Company currently holds (European) Community
trademark and service mark registrations for the marks D2D and DIRECT2DATA, and
a Japanese trademark registration for the mark DIRECT2DATA. The Company
currently holds Canadian trademark and service mark applications for the marks
D2D and DIRECT2DATA, and a Japanese trademark application for the mark D2D. The
Company further promotes its products and services under other marks.
GOVERNMENT REGULATION
- ---------------------
The Company utilizes wireless communications in its CameraMan(R) camera and
PVTV(TM) systems and in its D2D(TM) technology. These wireless communications
utilize infrared and radio frequency technology that is subject to regulation by
the Federal Communications Commission ("FCC") in the United States and other
government agencies in foreign countries. The Company has obtained, is in the
process of obtaining, or will attempt to obtain all licenses and approvals
necessary for the operation of its products and technologies in those counties
that it sells products. There can be no assurance that, in the future, the
Company will be able to obtain required licenses or that the FCC or other
foreign
13
government agency will not require the Company to comply with more stringent
licensing requirements. Failure or delay in obtaining required licenses would
have a material adverse effect on the Company. In addition, expansion of the
Company's operations into certain foreign markets may require the Company to
obtain additional licenses for its products. Amendments to existing statutes and
regulations, adoption of new statutes and regulations and the Company's
expansion into foreign jurisdictions, could require the Company to alter methods
of operations at costs that could be substantial, which could have an adverse
effect on the Company. There can be no assurance that the Company will be able,
for financial or other reasons, to comply with applicable laws and regulations
and licensing requirements.
RESEARCH AND DEVELOPMENT
- ------------------------
For the years ended December 31, 2000, 1999 and 1998, the Company expended
approximately $12,601,000, $6,203,000 and $3,825,000, respectively, on research
and development. For the past three years, the Company's principal research and
development efforts have been devoted to the development of the PVTV(TM) product
line in the Video Division and the D2D(TM) technology in the Wireless Division.
The significant growth in research and development spending is primarily
attributable to aggressive development efforts related to the D2D(TM) technology
and the addition of design centers in California, Utah and Orlando, Florida.
Refer to Item 1 - Business - Wireless Division.
EMPLOYEES
- ---------
As of December 31, 2000, the Company had 131 full-time employees and 1 part-time
employee, of which twenty-two are employed in manufacturing, sixty-seven in
engineering research and development, fourteen in sales and marketing, eleven in
product training and support, and eighteen in finance and administration. None
of the Company's employees are represented by a labor union. The Company
considers its employee relations satisfactory.
ITEM 2. PROPERTIES
The Company's executive offices and Video Division manufacturing, sales and
distribution operations are located in approximately 33,000 square feet of
leased space on three acres of land in Jacksonville, Florida, pursuant to a
lease agreement with Jeffrey Parker, Chairman of the Board, Chief Executive
Officer and President of the Company, and Barbara Parker, a related party. The
initial lease term expired in February 1997, and the Company exercised its first
of three five-year renewal options. The lease is on a triple net basis and
currently provides for a monthly base rental payment of approximately $24,300
through February 2002. The Company believes that its manufacturing facility is
adequate for its current and reasonably foreseeable future needs. The Company
believes that additional physical capacity at its current facility will
accommodate expansion, if required.
The Company leases approximately 5,300 square feet of office space in
Jacksonville, Florida for its Wireless Division engineering and business
development staff. The initial lease expired in May 2000 and the Company
exercised a one-year renewal option. The lease provides for a monthly rental
payment of approximately $9,300 through May 2001.
14
The Company also leases approximately 8,700 square feet of office space in Lake
Mary, Florida for the Wireless Division's Orlando engineering personnel. The
lease term commenced in September 2000 and provides for a monthly rental payment
of approximately $14,400 through September 2005. The Company amended this lease
agreement to add an additional 3,200 square feet commencing January 2001 for an
additional monthly rental payment of approximately $5,100 through December 31,
2005. The Company leases approximately 3,700 square feet of office space in the
same Lake Mary, Florida facility for the Wireless Division's Orlando business
development personnel. The lease term commenced in November 2000 and provides
for a monthly rental payment of approximately $6,500 through November 2005.
The Company leases approximately 5,600 square feet of office space in
Pleasanton, California for the Wireless Division's West Coast engineering and
business development personnel. The lease term commenced in March 2000 and
provides for a monthly rental payment of approximately $13,700 through March
2005.
The Company leases approximately 1,200 square feet in Los Angeles, California as
a demonstration and training facility for the Company's video products. The
lease provides for a monthly rental payment of approximately $1,600 per month
through May 2002.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
- ------------------
The Company's common stock is traded under the symbol (PRKR) on the Nasdaq
National Market ("Nasdaq"), which is the principal market for the common stock.
Listed below is the range of the high and low bid prices of the common stock for
the last three fiscal years, as reported by Nasdaq. The amounts represent
inter-dealer quotations without adjustment for retail markups, markdowns or
commissions and do not necessarily represent the prices of actual transactions.
2000 1999 1998
------------------ ------------------ ------------------
High Low High Low High Low
------- ------- ------- ------- ------- -------
1st Quarter $36.500 $25.250 $31.500 $22.063 $24.000 $12.188
2nd Quarter 52.875 21.000 37.313 25.938 27.250 19.250
3rd Quarter 52.000 36.250 39.063 21.875 23.500 10.813
4th Quarter 56.438 36.500 32.000 18.500 24.750 11.375
15
HOLDERS
- -------
As of March 23, 2001, there were 118 holders of record. The Company believes
there are approximately 2,100 beneficial holders of the Company's common stock.
DIVIDENDS
- ---------
To date, the Company has not paid any dividends on its common stock. The payment
of dividends in the future is at the discretion of the board of directors and
will depend upon the Company's ability to generate earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not presently intend to declare any dividends in the foreseeable future,
but instead it intends to retain all earnings, if any, for use in the Company's
business.
SALES OF UNREGISTERED SECURITIES
- --------------------------------
If option, warrant or
Consideration received and Exemption convertible security,
description of underwriting or from terms
Date of Number other discounts to market price registration of exercise or
sale Title of security sold afforded to purchasers claimed conversion
- ----------------------------------------------------------------------------------------------------------------------------------
12/4//00 Options to 135,000 Options granted - no 4(2) Exercisable for five
purchase consideration received by years from the date the
common stock Company until exercise options first become
granted to vested, options vest
employees over five years at an
pursuant to the exercise price of
2000 Plan $41.50 per share
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data for the Company as of
the dates and for the periods indicated. The data has been derived from the
audited financial statements of the Company included in Item 8. The selected
financial data should be read in conjunction with the consolidated financial
statements of the Company and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
16
For the years ended December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues, net $ 15,965 $ 10,549 $ 9,892 $ 10,799 $ 9,196
Gross margin 7,474 3,609 3,461 4,290 3,209
Operating expenses 22,445 14,647 9,644 8,243 5,421
Interest income 1,949 1,297 1,477 1,019 614
Interest expense 0 0 0 0 76
Net loss (13,022) (9,741) (4,706) (2,934) (1,674)
Basic and diluted net loss per
Common share (1.03) (0.83) (0.41) (0.28) (0.17)
BALANCE SHEET DATA:
Total assets 63,608 32,771 40,250 38,685 18,162
Long term liabilities 140 30 18 5 3
Shareholders' equity 60,020 30,136 38,982 37,527 17,277
Working capital 45,600 22,733 25,290 24,424 8,214
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
When used in the Form 10-K and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "expects" or "the
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 any such forward-looking statements,
each of which speak 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. These risks include, but are not limited to, the continuing losses of
the Company which may result in the need for additional capital in the future or
a change in current operations, the need for substantial capital and use of
current working capital to develop new products and for research and
development, uncertainty of product development, technological obsolescence,
market acceptance of its products and dependence on third party suppliers and
distributors. The Company may also have to expend substantial employee time and
financial resources to meet governmental regulation requirements and for the
protection of its intellectual property rights. The Company has no obligation to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
17
GENERAL
- -------
The Company has made significant investments in developing the technology and
manufacturing capability for its 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. To date the
Company has used the proceeds from the sale of its equity securities to fund its
operations. The Company anticipates increases in revenues in 2001. These
increases are subject to the Company continuing to expand its product lines and
attracting additional means of distribution and customers, among other things.
The Company intends to continue to use its working capital to build its
infrastructure to support future marketing and sales and research and
development activities for its products. No assurance can be given that such
expenditures will result in increased sales, new products, or technological
advances.
RESULTS OF OPERATIONS FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2000, 1999
- --------------------------------------------------------------------------------
AND 1998
- --------
Revenues
- --------
Revenues for the years ended December 31, 2000, 1999 and 1998 were $15,964,587,
$10,549,081 and $9,891,543, respectively. The Company's revenues to date consist
of sales of its CameraMan(R) automated video camera control systems, automated
production systems and various accessories and services that complement those
systems. Revenues generated by the Company's major product lines as a percentage
of total revenues for the years ended December 31, 2000, 1999 and 1998 are as
follows:
2000 1999 1998
-------- -------- --------
CameraMan systems 60% 89% 97%
PVTV Studio systems 40% 11% 3%
The number of CameraMan(TM) and PVTV Studio(TM) systems sold and the average
selling price per system for the years ended December 31, 2000 1999 and 1998 are
as follows:
Camera Systems Studio Systems
------------------------------ ------------------------------
# Avg. Selling # Avg. Selling
Systems Price Per Systems Price Per
Sold System Sold System
----------- ---------------- ----------- ----------------
2000 1,431 $6,600 15 $398,000
1999 1,415 $6,600 5 $240,000
1998 1,413 $6,800 2 $150,000
The increase in revenues from 1999 to 2000 was primarily due to increased
revenues from PVTV Studio(TM) systems and related support services. The increase
in revenue from PVTV Studio(TM) systems is due to an increase in the number of
systems sold as well as an increase in the average selling price per system. The
increase in the number of PVTV Studio(TM) systems sold is due to the Company's
direct selling efforts and marketing of this new product line. The increase in
the average selling price is due to higher discounts offered on 1999 system
sales as they represented "pilot sites", as well as
18
increased sales of digital systems and dual systems in 2000 which have a higher
selling price. PVTV Studio(TM) revenues included approximately $430,000 of
training and other service related revenue in 2000.
The increase in revenues from 1998 to 1999 was primarily due to increased PVTV
Studio(TM) system sales, offset somewhat by a decrease in the average selling
price of camera systems. The change in average selling price of camera systems
was due to the mix of products sold as well as discounts offered on slightly
used camera systems to reduce the Company's inventory of finished products used
for demonstrations and tradeshows.
The Company anticipates further increases in revenue in 2001, primarily from
sales of its PVTV Studio(TM) systems and related services and support. These
PVTV Studio(TM) systems have list prices ranging from approximately $175,000 to
over $450,000 per system, with additional revenue ranging from approximately
$5,000 to $26,000 for training and other services per installed site. The
Company also anticipates increased support revenue related to annual support
contracts for its PVTV Studio(TM) installed sites.
The Company is also attempting to commercialize its D2D(TM) RF technology. The
Company's various commercialization efforts could result in initial product or
licensing revenues in 2001.
While the Company strives for consistent revenue growth, there can be no
assurance that consistent revenue growth or profitability can be achieved. The
Company's ability to achieve revenue growth is dependent upon many factors,
including market acceptance of new products and technologies, ability of vendors
to supply key components, development of new products in a timely manner,
relationships with significant customers and resellers, and changes in capital
spending by customers. There can be no assurance that the Company will be able
to increase or even maintain its current level of revenues on a quarterly or
annual basis in the future.
Gross Margin
- ------------
For the years ended December 31, 2000, 1999 and 1998, gross margins as a
percentage of sales were 47%, 34% and 35%, respectively.
The increase in margin from 1999 to 2000 is primarily due to the increased
revenues from PVTV Studio(TM) systems which have a higher gross margin
percentage per system sale than the historical camera sales as well as increased
production efficiencies recognized during the second half of 2000. The margin
increase is offset somewhat by increases in the Company's inventory reserves due
to a shift in market demand from analog to digital PVTV Studio(TM) systems.
Fluctuations in margin are in part due to changes in the product mix and
discounts offered on used systems to reduce the Company's inventory of finished
products used for demonstrations and tradeshows. In addition, in 1999, the
Company's manufacturing labor costs increased due to an increased usage of
contract labor, increased indirect labor required for production of initial PVTV
systems and increased resources dedicated to replacing obsolete parts related to
the Company's camera systems. In addition, one of the automated production
systems sold in 1999 was a beta system with related third party equipment, which
was deeply discounted.
19
While the Company continuously works to improve its gross margin through product
pricing, labor efficiencies, reduction of overhead, and product design, there
can be no assurance that gross margins will improve significantly over, or
remain stable with, the gross margins attained in 2000 due to the highly
competitive nature of the industry, the introduction of new products, and
fluctuations in the cost of component parts.
Research and Development Expenses
- ---------------------------------
The Company's research and development expenses increased by approximately
$6,399,000 or 103% from 1999 to 2000 and increased by approximately $2,378,000
or 62% from 1998 to 1999. Research and development expenses as a percentage of
revenues were 79%, 59% and 39% in 2000, 1999 and 1998, respectively.
From 1999 to 2000, the increase in research and development expenses was
primarily due to the opening of design centers in California and Orlando during
2000 for wireless development. The opening of these design centers resulted in
the addition of approximately forty engineers, increased capital spending for
the setup and support of the development efforts and increased overhead related
to the new facilities. These increases in the Wireless Division were somewhat
offset by decreases in the use of third-party application engineering services.
In addition, the Company's Video Division increased outside development fees
related to certain aspects of its PVTV Studio product line and also incurred a
non-recurring charge of $625,000 related to the write-off of a deposit for
licensing rights for certain camera technology.
From 1998 to 1999, the increase in research and development expenses was
primarily related to the Company's development of the D2D(TM) RF technology. The
increased expenses related to D2D(TM) included fees for third-party application
engineering services, increased depreciation due to capital expenditures for
test and development equipment, and increased prototype expenses.
The markets for the Company's products and technologies are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. The Company's ability to successfully develop and
introduce, on a timely basis, new and enhanced products and technologies will be
a significant factor in the Company's ability to grow and remain competitive.
Although the percentage of revenues invested by the Company may vary from period
to period, the Company is committed to investing in its research and development
programs. The Company anticipates it will use a substantial portion of its
working capital for research and development activities in 2001.
Marketing and Selling Expenses
- ------------------------------
Marketing and selling expenses increased by approximately $891,000 or 22% from
1999 to 2000 and increased by approximately $660,000, or 20% from 1998 to 1999.
Marketing and selling expenses as a percentage of revenues were 31%, 38% and 34%
for the years ended December 31, 2000, 1999 and 1998, respectively.
The increases in marketing and selling expenses from 1999 to 2000 were due to
increases in the wireless business development expenses, primarily personnel,
focused on initial commercialization of
20
the D2D(TM) technology. The increases in marketing and selling expenses in the
Wireless Division were offset somewhat by decreases in sales and marketing
expenses for the Company's Video Division. Although the Video Division
experienced increases in sales commissions, due to increased revenues, this
increase was offset by reductions in personnel and reduced advertising, trade
show and other promotional expenses during the second half of 2000.
The increases in marketing and selling expenses from 1998 to 1999 were due to
increases in marketing expenses and support personnel for the Company's video
division as well as increases in the wireless business development expenses
during the second half of 1999. The Video Division increased its promotional
expenses during the last half of 1999 in order to promote the Company's PVTV
Learning systems. The Company's wireless division added several business
development personnel during the second half of 1999 to focus on the
commercialization of the D2D technology.
The Company is committed to continuing its investment in marketing and selling
efforts in order to continue to increase market awareness and penetration of its
products, and anticipates further increases in sales and marketing expenses in
2001 in order to support the Company's commercialization of its D2D(TM)
technology and increases sales of its PVTV Studio products.
General and Administrative Expenses
- -----------------------------------
The Company's general and administrative expenses increased by approximately
$577,000, or 13% from 1999 to 2000 and by approximately $1,894,000, or 76% from
1998 to 1999. General and administrative expenses consist primarily of executive
and administrative personnel compensation, insurance costs and costs incurred
for outside professional services.
The increases in general and administrative expenses from 1999 to 2000 are
primarily a result of increases in administrative and accounting personnel to
support the Company's growing operations as well as an increase in compensation
expense for the Company's Chief Executive Officer.
The increase in general and administrative expenses from 1998 to 1999 was
primarily due to outside professional fees for negotiation of wireless contracts
and increased use of investment bankers and other outside professionals during
1999.
As a percentage of revenues, general and administrative expenses were 31%, 42%
and 25% in 2000, 1999, and 1998, respectively. The Company does anticipate
further increases in general and administrative expenses, primarily the addition
of executive personnel, in order to support the commercialization of its D2D(TM)
technology and the continued growth of its Video Division.
Other Expense
- -------------
Other expense consists of losses on the disposal of fixed assets no longer in
service. These assets consist primarily of obsolete computer equipment and trade
show materials.
21
Interest Income
- ---------------
Interest income increased by approximately $652,000 from 1999 to 2000 and
decreased by approximately $181,000 from 1998 to 1999. Interest income primarily
represents interest earned on the Company's investment of the proceeds from its
initial public offering in 1993 and its subsequent sales of securities during
1997, 1998, 1999 and 2000. The increase in interest income from 1999 to 2000 is
due to the investment of funds by the Company's sale of equity securities in May
2000, offset by funds used to support operations. The decrease in interest
income from 1998 to 1999 is due to the use of proceeds from maturing investments
to fund increased operating expenses.
Loss and Loss per Share
- -----------------------
The Company's net loss increased from approximately $9,741,000, or $0.83 per
share in 1999 to approximately $13,022,000, or $1.03 per share in 2000,
representing an increase of approximately $3,281,000 or $0.20 per common share.
The increase in net loss is primarily due to a $7.3 million increase in
operating expenses attributable to the Company's Wireless Division, primarily
for research and development activities, offset by an increase in gross margin
of approximately $3.9 million due to increased revenues generated by the
Company's Video Division.
The Company's net loss increased from approximately $4,706,000, or $0.41 per
share in 1998 to $9,741,000, or $0.83 per share in 1999, representing an
increase of approximately $5,035,000, or $0.42 per common share. This increase
in net loss was also primarily due to a $4.4 million increase in operating
expenses attributable to the Wireless Division, primarily for research and
development and business development activities.
Backlog
- -------
As of December 31, 2000, 1999, and 1998, the Company had a camera backlog of
approximately $281,000, $390,000, and $31,000, respectively. Backlog consists of
camera system orders received from customers, which generally have a specified
delivery schedule within one to four weeks of receipt. In addition, at December
31, 2000 and 1999, the Company had a backlog of PVTV Studio sales and services
of approximately $350,000 and $560,000, respectively.
Liquidity and Capital Resources
- -------------------------------
At December 31, 2000, the Company had working capital of approximately
$45,600,000, including approximately $39,319,000 in cash, cash equivalents and
short-term investments. The Company used cash for operating activities of
approximately $10,297,000, $7,556,000, and $3,819,000, for the years ended
December 31, 2000, 1999, and 1998, respectively. The increases in cash used for
operating activities are primarily the result of increases in the net losses
generated by the Company due to increased expenditures related to its wireless
technology.
The Company generated cash from investing activities of approximately $2,587,000
and $6,739,000 for the years ended December 31, 2000 and 1998, respectively, and
used cash for investing activities of
22
approximately $1,815,000 for the year ended December 31, 1999. The cash provided
by and used for investing activities is primarily a result of the purchase and
maturity of investments in government backed securities, the payment for
intangible assets, and capital expenditures. The Company incurred approximately
$2,298,000, $1,655,000, and $1,799,000 in connection with patent costs primarily
related to the Company's wireless technology in 2000, 1999 and 1998,
respectively. The Company incurred approximately $5,116,000, $1,489,000, and
$962,000 for capital expenditures in 2000, 1999, and 1998, respectively. These
capital expenditures primarily represent the purchase of certain research and
development software and test equipment, marketing and sales demonstration
equipment and computer and office equipment to support additional personnel. The
increase in capital expenditures during 2000 is primarily due to the setup of
new wireless design centers in California and Orlando, the purchase of design
software for wireless chip development, and the acquisition of a fractional
share in an aircraft. At December 31, 2000, the Company was not subject to any
significant commitments to make additional capital expenditures.
The Company generated cash from financing activities of approximately
$36,954,000, $930,000, and $5,516,000 for the years ended December 31, 2000,
1999 and 1998, respectively. The cash generated from financing activities
represents proceeds from the issuance of common stock to institutional investors
in transactions exempt from registration under the Securities Act of 1933 and
the exercise of employee stock options and warrants issued in connection with
previous financing transactions and outside consulting agreements.
The Company's future business plans call for continued increases in research,
development and marketing costs related to its wireless technology. The Company
intends to utilize its working capital to fund these increases. The Company
believes it has sufficient capital to fund its business plan for 2001 and on a
longer term basis without additional capital. The Company's principal source of
liquidity at December 31, 2000 consisted of $39.3 million in cash, cash
equivalents and investments resulting from its initial public offering and
subsequent offerings. Until the Company generates sufficient revenues from
system and other sales, it will be required to continue to utilize its cash and
investments to cover the continuing expense of product development, marketing
and general administration.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 25
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - December 31, 2000 and 1999 26-27
Consolidated Statements of Operations - for the years ended
December 31, 2000, 1999 and 1998 28
Consolidated Statements of Shareholders' Equity - for the
years ended December 31, 2000, 1999 and 1998 29-30
Consolidated Statements of Cash Flows - for the years ended
December 31, 2000, 1999 and 1998 31
Notes to Consolidated Financial Statements - December 31,
2000, 1999 and 1998 32-48
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 54
Schedules other than those listed have been omitted since
they are either not required, not applicable or the
information is otherwise included.
24
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
of ParkerVision, Inc. and Subsidiary:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
ParkerVision, Inc. and its subsidiary at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Jacksonville, Florida
March 14, 2001
25
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $31,371,904 $ 2,128,742
Short-term investments 7,947,120 17,530,436
Accounts receivable, net of allowance for doubtful
accounts of $103,199 and $37,308 at December 31,
2000 and 1999, respectively 2,343,916 876,632
Inventories, net 3,993,009 3,922,916
Prepaid expenses and other 3,391,595 878,784
----------- -----------
Total current assets 49,047,544 25,337,510
PROPERTY AND EQUIPMENT, net 7,522,645 3,284,755
OTHER ASSETS, net 7,037,705 4,149,153
----------- -----------
Total assets $63,607,894 $32,771,418
=========== ===========
The accompanying notes are an integral part of these balance sheets.
26
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 893,406 $ 704,467
Accrued expenses:
Salaries and wages 697,675 353,736
Warranty reserves 198,140 139,326
Sales tax payable 110,720 34,288
Other accrued expenses 564,735 537,146
Deferred revenue 983,044 835,988
------------ ------------
Total current liabilities 3,447,720 2,604,951
DEFERRED INCOME TAXES 139,769 30,144
COMMITMENTS AND CONTINGENCIES
(Notes 10 and 14)
------------ ------------
Total liabilities 3,587,489 2,635,095
------------ ------------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, $1 par value, 5,000,000
shares authorized, 114,019 shares issued and
outstanding at December 31, 2000 114,019 0
Common stock, $.01 par value, 100,000,000 shares
authorized, 13,445,675 and 11,790,048 shares
issued and outstanding at December 31, 2000 and
1999, respectively 134,457 117,900
Warrants outstanding 15,659,035 3,232,025
Additional paid-in capital 83,937,839 53,723,742
Accumulated other comprehensive loss (52,880) (187,052)
Accumulated deficit (39,772,065) (26,750,292)
------------ ------------
Total shareholders' equity 60,020,405 30,136,323
------------ ------------
Total liabilities and shareholders' equity $ 63,607,894 $ 32,771,418
============ ============
The accompanying notes are an integral part of these balance sheets.
27
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
------------ ------------ ------------
Revenues, net $ 15,964,587 $ 10,549,081 $ 9,891,543
Cost of goods sold 8,489,877 6,940,440 6,430,517
------------ ------------ ------------
Gross margin 7,474,710 3,608,641 3,461,026
------------ ------------ ------------
Research and development expenses 12,601,496 6,202,937 3,825,414
Marketing and selling expenses 4,879,626 3,988,189 3,327,786
General and administrative expenses 4,961,082 4,383,785 2,489,959
Other expense 2,889 71,573 1,664
------------ ------------ ------------
Total operating expenses 22,445,093 14,646,484 9,644,823
------------ ------------ ------------
Loss from operations (14,970,383) (11,037,843) (6,183,797)
Interest income 1,948,610 1,296,451 1,477,399
------------ ------------ ------------
Net loss $(13,021,773) $ (9,741,392) $ (4,706,398)
============ ============ ============
Basic and diluted loss per common share $ (1.03) $ (0.83) $ (0.41)
============ ============ ============
The accompanying notes are an integral part of these statements.
28
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
--------------------------------------------
CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR 0 0 0
Issuance of preferred stock for purchase of STI assets 79,868 0 0
Issuance of preferred stock as employee compensation 34,151 0 0
--------------------------------------------
CONVERTIBLE PREFERRED SHARES - END OF YEAR 114,019 0 0
============================================
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR $ 0 $ 0 $ 0
Issuance of preferred stock for purchase of STI assets 79,868 0 0
Issuance of preferred stock as employee compensation 34,151 0 0
--------------------------------------------
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - END OF YEAR $ 114,019 $ 0 $ 0
============================================
COMMON SHARES - BEGINNING OF YEAR 11,790,048 11,718,678 11,337,707
Issuance of common stock upon exercise of options and
warrants 504,565 71,370 142,875
Issuance of restricted common stock as employee
compensation 92,112 0 0
Issuance of common stock in private offering 1,058,950 0 238,096
--------------------------------------------
COMMON SHARES - END OF YEAR 13,445,675 11,790,048 11,718,678
============================================
PAR VALUE OF COMMON STOCK - BEGINNING OF YEAR $ 117,900 $ 117,187 $ 113,377
Issuance of common stock upon exercise of options and
warrants 5,046 713 1,429
Issuance of restricted common stock as employee
compensation 921 0 0
Issuance of common stock in private offering 10,590 0 2,381
--------------------------------------------
PAR VALUE OF COMMON STOCK - END OF YEAR $ 134,457 $ 117,900 $ 117,187
============================================
WARRANTS OUTSTANDING - BEGINNING OF YEAR $ 3,232,025 $ 3,257,625 $ 3,385,758
Exercise of warrants (738,385) (25,600) (128,133)
Issuance of warrants in connection with private offering 13,165,395 0 0
--------------------------------------------
WARRANTS OUTSTANDING - END OF YEAR $ 15,659,035 $ 3,232,025 $ 3,257,625
============================================
The accompanying notes are an integral part of these statements.
29
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
--------------------------------------------
ADDITIONAL PAID-IN CAPITAL - BEGINNING OF YEAR $ 53,723,742 $ 52,543,817 $ 46,330,279
Issuance of common stock upon exercise of options and
warrants 7,723,866 954,676 659,184
Issuance of restricted common stock as employee
compensation 2,853,139 0 0
Issuance of common stock in private offering 16,787,015 0 4,981,319
Issuance of preferred stock for purchase of STI assets 1,916,832 0 0
Issuance of preferred stock as employee compensation 819,624 0 0
Issuance of options for business consulting services 0 0 573,035
Amortization of deferred compensation 113,621 225,249 0
--------------------------------------------
ADDITIONAL PAID-IN CAPITAL - END OF YEAR $ 83,937,839 $ 53,723,742 $ 52,543,817
============================================
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - BEGINNING
OF YEAR $ (187,052) $ 72,241 $ 0
Change in unrealized gain (loss) on investments 134,172 (259,293) 72,241
--------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - END OF
YEAR $ (52,880) $ (187,052) $ 72,241
============================================
ACCUMULATED DEFICIT - BEGINNING OF YEAR $(26,750,292) $(17,008,900) $(12,302,502)
Net loss (13,021,773) (9,741,392) (4,706,398)
--------------------------------------------
ACCUMULATED DEFICIT - END OF YEAR $(39,772,065) $(26,750,292) $(17,008,900)
============================================
TOTAL SHAREHOLDERS' EQUITY - BEGINNING OF YEAR $ 30,136,323 $ 38,981,970 $ 37,526,912
Issuance of common stock upon exercise of options and
warrants 6,990,526 929,789 532,480
Issuance of restricted common stock as employee
compensation 2,854,060 0 0
Issuance of common stock in private offering 29,963,001 0 4,983,700
Issuance of preferred stock for purchase of STI assets 1,996,700 0 0
Issuance of preferred stock as employee compensation 853,775 0 0
Issuance of options for business consulting services 0 0 573,035
Amortization of deferred compensation 113,621 225,249 0
Comprehensive loss (12,887,601) (10,000,685) (4,634,157)
--------------------------------------------
TOTAL SHAREHOLDERS' EQUITY - END OF YEAR $ 60,020,405 $ 30,136,323 $ 38,981,970
============================================
The accompanying notes are an integral part of these statements.
30
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,021,773) $ (9,741,392) $ (4,706,398)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,002,896 1,573,932 1,064,572
Amortization of discounts on investments (282,512) (41,961) (194,792)
Provision for obsolete inventories 320,000 240,000 210,000
Stock compensation 1,299,101 0 0
Loss on sale of equipment 2,889 71,416 0
Changes in operating assets and liabilities:
Accounts receivable, net (1,467,284) (70,752) (144,933)
Inventories (390,093) (925,349) (477,480)
Prepaid and other expenses (163,545) (16,705) 333,374
Accounts payable and accrued expenses 1,256,055 552,418 84,076
Deferred revenue 147,056 802,584 12,431
------------ ------------ ------------
Total adjustments 2,724,563 2,185,583 887,248
------------ ------------ ------------
Net cash used in operating activities (10,297,210) (7,555,809) (3,819,150)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments available for sale 0 (5,740,892) 0
Purchase of investments held to maturity 0 (3,929,482) (8,000,000)
Proceeds from maturity of investments 10,000,000 11,000,000 17,500,000
Purchase of property and equipment (5,115,619) (1,489,267) (962,003)
Payment for patent costs (2,297,536) (1,655,032) (1,798,785)
------------ ------------ ------------
Net cash provided by (used in) investing activities 2,586,845 (1,814,673) 6,739,212
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 36,953,527 929,789 5,516,180
------------ ------------ ------------
Net cash provided by financing activities 36,953,527 929,789 5,516,180
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 29,243,162 (8,440,693) 8,436,242
CASH AND CASH EQUIVALENTS, beginning of year 2,128,742 10,569,435 2,133,193
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 31,371,904 $ 2,128,742 $ 10,569,435
============ ============ ============
The accompanying notes are an integral part of these statements.
31
PARKERVISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. THE COMPANY AND NATURE OF BUSINESS:
-----------------------------------
ParkerVision, Inc. (the "Company") was incorporated under the laws of the state
of Florida on August 22, 1989. The Company's operations are categorized into two
operating segments -- the Video Products Division ("Video Division") and the
Wireless Technology Division ("Wireless Division").
The Company operates in highly competitive industries 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 the technology and manufacturing capability for its
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 equity
securities to fund its operations. In the opinion of management, the Company has
adequate funds to meet its liquidity needs for 2001. The Company also believes
it will be able to generate increased revenues and additional capital, if
necessary, to sustain its operations on a longer-term basis. The Company has no
current arrangement with respect to additional financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
BASIS OF CONSOLIDATION.
Effective October 2, 2000, the Company formed a wholly owned subsidiary, D2D,
LLC. The consolidated financial statements include the accounts of ParkerVision,
Inc. and its subsidiary, after elimination of all intercompany transactions and
accounts.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. The more significant estimates made by management include
the allowance for doubtful accounts receivable, inventory reserves for potential
excess or obsolete inventory, the amortization period for intangible assets, and
warranty reserves. Actual results could differ from the estimates made.
Management periodically evaluates estimates used in the preparation of the
consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based upon
such periodic evaluation.
32
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include cash on hand, interest-bearing deposits, overnight
repurchase agreements and U.S. Treasury money market investments with original
maturities when purchased of three months or less.
INVESTMENTS
Investments consist of funds invested in U.S. Treasury notes, U.S. Treasury
bills and mortgage- backed securities guaranteed by the U.S. government. The
Company accounts for investment securities under Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Investments and mortgage-backed securities are
classified in the following categories:
Held to maturity - Securities that management has the intent and the Company has
the ability at the time of purchase to hold until maturity are classified as
securities held to maturity. Securities in this category are carried at
amortized cost adjusted for accretion of discounts and amortization of premiums
using the effective interest method over the estimated life of the securities.
If a security has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new cost basis by
recording a loss in the statement of income.
Available for sale - Securities to be held for indefinite periods of time and
not intended to be held to maturity are classified as available for sale.
Securities available for sale are recorded at fair value. Both unrealized
holding gains and losses on securities available for sale, net of deferred
income taxes, are included as a separate component of shareholder's equity in
the consolidated balance sheet until these gains or losses are realized. If a
security has a decline in fair value that is other than temporary, then the
security will be written down to its fair value by recording a loss in the
consolidated statement of income.
INVENTORIES
Inventories are stated at the lower of cost (as determined under the first-in,
first-out method) or market (net realizable value). Cost includes the
acquisition of purchased materials, labor and overhead. Purchased materials
inventory consists principally of components and subassemblies. The Company's
investment in inventory is maintained to meet anticipated future demand for its
product and the buildup of safety stock on single-source or long lead-time
components.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the following
estimated useful lives:
Manufacturing and office equipment 5-7 years
Tools and dies 5-7 years
Leasehold improvements 7-10 years
Aircraft 20 years
Vehicles 5 years
Furniture and fixtures 7 years
33
The cost and accumulated depreciation of assets sold or retired are removed from
their respective accounts, and any resulting gain or loss is recognized in the
accompanying consolidated statements of operations.
OTHER ASSETS
Included in other assets are patent costs, prepaid compensation, prepaid
licensing fees, deposits and prepaid noncompete and other intangible assets. The
Company has pursued an aggressive schedule for filing and acquiring patents
related to its wireless technology. Patent costs represent legal and filing
costs incurred to obtain patents and trademarks for product concepts and
methodologies developed by the Company. The Company currently holds nineteen
United States patents and seven foreign patents and has submitted multiple
patent applications that are currently pending. Capitalized patent costs are
being amortized over the estimated lives of the related patents, ranging from
five to twenty years. Prepaid compensation represents compensation under
employment agreements in connection with the acquisition of STI assets in 2000.
This prepaid compensation is being amortized to expense over the term of the
related employment agreements, or approximately three years. Prepaid licensing
fees represent costs incurred to obtain licenses for use of certain technologies
in future products. Prepaid licensing fees are being amortized over the
estimated terms of the licensing agreements. Prepaid noncompete and other
intangible assets represent intangible assets in connection with the acquisition
of STI assets in 2000. These assets are being amortized over their estimated
lives of two to three years.
REVENUE RECOGNITION
Product revenues, recorded net of discounts, are recognized at the time a
product is shipped or services are performed and the Company has no significant
further obligations to the customer. Customer prepayments are deferred until
product shipment has occurred or services have been rendered and there are no
significant further obligations to the customer. Revenue from multi-element
support contracts is recognized ratably over the life of the agreement,
generally one year.
WARRANTY COSTS
The Company generally warrants against defects in workmanship and material for
one year. Estimated costs related to warranty are accrued at the time of revenue
recognition and are included cost of sales. The Company offers extended service
and support contacts on its camera and automated production systems. Service and
support contract revenue is recognized ratably over the life of the agreement,
generally one year.
LOSS PER COMMON SHARE
Basic loss per common share is determined based on the weighted-average number
of common shares assumed to be outstanding during each year. Diluted loss per
common share is the same as basic loss per common share as all common share
equivalents are excluded from the calculation, as their effect is anti-dilutive.
The weighted-average number of common shares assumed to be outstanding for the
years ended December 31, 2000, 1999, and 1998, was 12,688,275, 11,763,380 and
11,413,555, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires that long-lived assets, including
intangibles of an entity, be reviewed for impairment. If circumstances suggest
that their values may be impaired, an assessment of
34
recoverability is performed prior to any write-down of the asset. In performing
the review for recoverability, the Company estimates the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, an impairment write-down to fair value (representing the
carrying amount that exceeds the discounted expected future cash flows) would be
recorded as a period expense. As of December 31, 2000, the Company does not
believe any such assets are impaired.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components. The Company's
other comprehensive income (loss) is comprised of unrealized gains (losses) on
investments available-for-sale which are included in accumulated other
comprehensive income in the consolidated statements of shareholders' equity.
STATEMENTS OF CASH FLOWS
The Company paid no interest during 1998, 1999 or 2000. In March 2000, the
Company issued Preferred Stock for the acquisition of substantially all of the
assets of STI, valued at $1,996,700 (see Note 15). In addition, the Company
issued Preferred Stock and restricted common stock under its 1993 Stock Plan
("1993 Plan") as signing bonuses and prepaid compensation totaling approximately
$3,600,000. In 1999, the Company amortized deferred compensation related to
options issued in 1998 by approximately $225,000. In 1998, the Company issued an
aggregate of 90,000 options, valued at approximately $901,000 for professional
services and recorded the forfeiture of 40,000 options valued at approximately
$328,000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements in order to conform to the 2000 presentation.
3. INVESTMENTS:
------------
At December 31, 2000 and 1999, short-term investments included investments with
maturity dates of less than one year classified as held-to-maturity reported at
their amortized cost of $0 and $3,976,596, respectively. At December 31, 2000
and 1999, short-term investments included investments with maturity dates from
one to two years classified as available-for-sale reported at their fair value
based on quoted market prices of $7,947,120 and $13,553,840, respectively. For
the years ended December 31, 2000, 1999 and 1998, unrealized gains (losses) of
$134,172, $(259,293), and $72,241 were recognized.
35
4. INVENTORIES:
------------
Inventories consist of the following at December 31, 2000 and 1999:
2000 1999
----------- -----------
Purchased materials $ 2,970,724 $ 2,328,805
Work in process 161,447 95,253
Finished goods 486,525 1,105,209
Demonstration inventory 1,142,598 897,461
----------- -----------
4,761,294 4,426,728
Less allowance for inventory
obsolescence (768,285) (503,812)
----------- -----------
$ 3,993,009 $ 3,922,916
=========== ===========
5. PREPAID EXPENSES AND OTHER
--------------------------
Prepaid expenses and other consist of the following at December 31, 2000 and
1999:
2000 1999
---------- ----------
Prepaid insurance $ 922,174 $ 393,947
Prepaid compensation 1,333,074 0
Prepaid rent 150,059 8,802
Other prepaid expenses 815,282 434,761
Current deferred tax asset 139,769 30,144
Interest and other receivables 31,237 11,130
---------- ----------
$3,391,595 $ 878,784
========== ==========
6. PROPERTY AND EQUIPMENT, NET:
----------------------------
Property and equipment, at cost, consist of the following at December 31, 2000
and 1999:
2000 1999
------------ ------------
Manufacturing and office equipment $ 9,693,835 $ 5,820,656
Tools and dies 809,432 792,688
Leasehold improvements 651,075 473,301
Aircraft and vehicles 818,684 0
Furniture and fixtures 486,493 213,441
------------ ------------
12,459,519 7,300,086
Less accumulated depreciation (4,936,874) (4,015,331)
------------ ------------
$ 7,522,645 $ 3,284,755
============ ============
36
Depreciation expense related to property and equipment was $1,364,801, $893,431
and $742,791, in 2000, 1999 and 1998, respectively.
7. OTHER ASSETS
------------
Other assets consist of the following at December 31, 2000 and 1999:
2000 1999
----------- -----------
Patents and copyrights $ 5,803,185 $ 3,777,749
Prepaid compensation 2,327,677 0
Noncompete agreement 300,000 0
Other intangible assets 364,830 0
Prepaid licensing fees 0 700,000
Deposits and other 248,661 9,598
----------- -----------
9,044,353 4,487,347
Less accumulated amortization (2,006,648) (338,194)
----------- -----------
$ 7,037,705 $ 4,149,153
=========== ===========
Amortization of patents and copyrights, noncompete and other intangibles was
$638,095, $164,959, and $49,194 in 2000, 1999 and 1998, respectively. Prepaid
license fees totaling $673,661 were written off in 2000.
8. INCOME TAXES AND TAX STATUS:
----------------------------
The Company accounts for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes." A reconciliation between the provision for income
taxes and the expected tax benefit using the federal statutory rate of 34% for
the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
----------- ----------- -----------
Tax benefit at statutory rate $(4,427,403) $(3,312,073) $(1,600,175)
State tax benefit (472,690) (353,613) (235,320)
Increase in valuation allowance 5,640,588 3,942,379 2,522,765
Research and development credit (784,970) (386,877) (681,798)
Other 44,475 110,184 (5,472)
----------- ----------- -----------
$ 0 $ 0 $ 0
=========== =========== ===========
The Company's deferred tax assets and liabilities relate to the following
sources and differences between financial accounting and the tax bases of the
Company's assets and liabilities at December 31, 2000 and 1999:
37
2000 1999
------------ ------------
Current deferred taxes:
Current gross deferred tax assets:
Deferred revenue $ 291,821 $ 259,575
Inventory obsolescence reserve 288,107 188,930
Inventory capitalization 96,588 121,648
Warranty reserve 74,302 52,247
Vacation accrual 101,763 55,202
Allowance for doubtful accounts 38,700 13,991
------------ ------------
891,281 691,593
Less valuation allowance (751,512) (661,449)
------------ ------------
Current net deferred tax assets $ 139,769 $ 30,144
============ ============
Noncurrent deferred taxes:
Noncurrent gross deferred tax assets:
Net operating loss carryforward $ 17,353,311 $ 9,872,395
Research and development credit carryforward 2,787,636 1,526,066
Patent amortization and other 213,968 464,005
------------ ------------
20,354,915 11,862,466
Less valuation allowance (18,481,475) (11,421,062)
------------ ------------
Noncurrent net deferred tax assets 1,873,440 441,404
------------ ------------
Noncurrent gross deferred tax liabilities:
Warrant exercise (1,418,016) (294,146)
Depreciation and other (595,193) (177,402)
------------ ------------
Noncurrent deferred tax liabilities (2,013,209) (471,548)
------------ ------------
Noncurrent net deferred tax liabilities $ (139,769) $ (30,144)
============ ============
The Company has recorded a valuation allowance to state its deferred tax assets
at estimated net realizable value due to the uncertainty related to realization
of these assets through future taxable income. The valuation allowance for
deferred tax assets as of December 31, 2000 and 1999 was $19,232,987 and
$12,082,511, respectively.
At December 31, 2000, the Company had net operating loss and research and
development carryforwards for income tax purposes of approximately $45,275,000
and $2,788,000, respectively, which expire beginning in 2008. The Company's
ability to benefit from the net operating loss and research and development
carryforwards could be limited under certain provisions of the Internal Revenue
Code if ownership of the Company changes by more than 50%, as defined.
38
9. WARRANTY COSTS
--------------
For the years ended December 31, 2000, 1999 and 1998, warranty expenses were
approximately $147,000, $110,000 and $95,000, respectively
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASE COMMITMENTS
The Company's executive offices and Video Division operations are located in
Jacksonville, Florida, pursuant to a noncancelable lease agreement (see Note
11). The initial lease term expired in February 1997, and the Company exercised
its first of three five-year renewal options. The lease is on a triple net basis
and currently provides for a monthly base rental payment of $24,288 through
February 2002.
In November 1999, the Company entered into a lease arrangement for additional
office space in Jacksonville, Florida under a noncancelable lease agreement. The
initial lease term expired in May 2000 and the Company exercised its one-year
renewal option. The lease currently provides for a monthly base rental payment
of approximately $9,300 through May 2001.
In 2000, the Company entered into a lease agreement for office space in Lake
Mary, Florida for the Wireless Division's Orlando engineering personnel. The
lease term commenced in September 2000 and currently provides for a monthly base
rental payment of approximately $19,500 through December 2005. The Company
entered into a lease agreement for additional office space in the same facility
in November 2000 for the Wireless Division's Orlando business development
personnel. The lease term provides for a monthly base rental payment of
approximately $6,500 through November 2005.
Also in 2000, the Company entered into a lease agreement for office space in
Pleasanton, California for the Wireless Division's West Coast engineering and
business development personnel. The lease term commenced in March 2000 and
provides for a monthly base rental payment of approximately $13,700 through
March 2005.
The Company leases a demonstration and training facility in Los Angeles,
California pursuant to a noncancelable lease agreement. The lease provides for a
monthly rental payment of approximately $1,600 per month through May 2002.
In addition to sales tax payable on base rental amounts, certain leases obligate
the Company to pay property taxes, maintenance and repair costs. Rent expense
for the years ended December 31, 2000, 1999 and 1998 was $663,293, $342,973 and
$325,218, respectively. Future minimum lease payments under all noncancelable
operating leases as of December 31, 2000 were as follows:
2001 $ 846,000
2002 528,000
2003 475,000
2004 475,000
2005 268,000
----------
$2,592,000
==========
39
PURCHASE COMMITMENTS
At December 31, 2000, the Company has commitments to purchase materials
aggregating approximately $579,000 through 2001 from seven suppliers. One of
these suppliers is a single-source supplier of the Company's camera modules and
accounted for approximately 20%, 26% and 18% of the Company's component
purchases for the years ended December 31, 2000, 1999 and 1998, respectively. No
other supplier accounted for more than 10% of the Company's component purchases
in 2000, 1999 or 1998.
11. RELATED-PARTY TRANSACTIONS:
---------------------------
The Company leases its manufacturing and headquarters office facilities from the
Chairman and Chief Executive Officer of the Company and his mother. The lease's
current terms obligate the Company through February 28, 2002 at a monthly base
rental payment of $24,288.
12. CONCENTRATIONS OF CREDIT RISK
-----------------------------
Financial instruments that potentially subject the Company to a concentration of
credit risk principally consist of cash, cash equivalents and trade receivables.
At December 31, 2000, the Company had cash balances on deposit with banks that
exceeded the balance insured by the F.D.I.C. The Company maintains its cash
investments with what management believes to be quality financial institutions
and limits the amount of credit exposure to any one institution.
One customer, Vtel Corporation ("VTEL") accounted for approximately 16%, 29% and
35% of the Company's total revenues in 2000, 1999 and 1998, respectively. The
Ackerley Group, a broadcast ownership group, accounted for approximately 30% of
the Company's revenues in 2000. No other customer accounted for more that 10% of
the Company's revenues in 2000, 1999 or 1998. The Ackerley Group accounted for
approximately 56% of accounts receivable at December 31, 2000. The Company
closely monitors extensions of credit and has never experienced significant
credit losses.
13. BUSINESS SEGMENT INFORMATION
----------------------------
The Company operates in two reportable segments, each of which is a strategic
business that is managed separately because each business develops and
commercializes distinct products and technologies. The segments are the Video
Division and Wireless Division.
The Video Division is engaged in the design, development and marketing of
CameraMan(R) automated video camera control systems and PVTV Studio(R) automated
production systems. The Company sells its video products and education-based
automated production systems primarily through audiovisual dealers and other
equipment manufacturers throughout the United States as well as in Canada, Latin
America and Asia. The Company also engages in direct selling of its high-end
automated production systems.
The Company's Wireless Division is engaged in the development and initial
commercialization of its
40
Direct2Data(TM), or D2D(TM), technology. This technology is a wireless radio
frequency ("RF") technology that the Company believes will reduce cost, size,
and power consumption while improving performance of wireless devices such as
cellular telephones and wireless local area networks ("WLAN"), among others. The
Company's Wireless Division is in the early stages of commercialization and has
not generated any revenues to date.
Management primarily evaluates the operating performance of its segments based
on net sales and income from operations. The accounting policies of the segments
are substantially the same as those described in the summary of significant
accounting polices discussed in Note 2.
Prior to 1999, the Company operated in a single reportable segment of
microelectronic hardware and software products and related technologies. As the
Company has completed the research of its wireless technology and is moving
toward commercialization of the technology, the Company redefined its reportable
segments effective July 1, 1999. Segment information for 1998 is restated to
reflect the revised segments. Segment results are as follows (in thousands):
2000 1999 1998
-------- -------- --------
NET SALES:
Video Division $ 15,965 $ 10,549 $ 9,892
Wireless Division 0 0 0
-------- -------- --------
Total net sales $ 15,965 $ 10,549 $ 9,892
======== ======== ========
LOSS FROM OPERATIONS:
Video Division $ 99 $ (3,384) $ (2,941)
Wireless Division (15,047) (7,653) (3,242)
Other (a) 1,926 1,296 1,477
-------- -------- --------
Total net loss $(13,022) $ (9,741) $ (4,706)
======== ======== ========
DEPRECIATION:
Video Division $ 545 $ 539 $ 510
Wireless Division 820 354 233
-------- -------- --------
Total depreciation $ 1,365 $ 893 $ 743
======== ======== ========
AMORTIZATION OF INTANGIBLES
AND OTHER ASSETS:
Video Division $ 70 $ 183 $ 85
Wireless Division 568 498 133
-------- -------- --------
Total amortization $ 638 $ 681 $ 218
======== ======== ========
CAPITAL EXPENDITURES:
Video Division $ 309 $ 616 $ 422
Wireless Division 4,621 695 380
Other (b) 186 178 160
-------- -------- --------
Total capital expenditures $ 5,116 $ 1,489 $ 962
======== ======== ========
41
ASSETS: 2000 1999 1998
-------- -------- --------
Video Division $ 8,208 $ 7,345 $ 6,385
Wireless Division 14,302 4,610 2,753
Other (c) 41,074 20,816 31,112
-------- -------- --------
Total assets $ 63,584 $ 32,771 $ 40,250
======== ======== ========
(a) Other primarily represents interest income from investments.
(b) Other represents corporate improvements, furniture and equipment.
(c) Other includes the following corporate assets (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Cash and investments $39,319 $19,659
Interest and other receivables 20 11
Prepaid expenses 1,023 466
Property and equipment, net 680 670
Other assets 32 10
------------ ------------
Total $41,074 $20,816
============ ============
14. STOCK OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION PLANS:
-----------------------------------------------------------
1993 STOCK PLAN
The Company adopted a stock plan in September 1993 (the "1993 Plan"). The 1993
Plan, as amended, provides 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 provides 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 generally vest for periods up to ten years and are exercisable for a
period of five years from the date the options become vested. Options granted to
directors under the 1993 Plan are generally exercisable immediately and expire
ten years from the date of grant. Options to purchase 139,768 shares of common
stock were available for future grants under the 1993 Plan at December 31, 2000.
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 for periods up
to five years and are exercisable for a period of five years from the date the
options become vested. Options granted to directors under the
42
2000 Plan are generally exercisable immediately and expire ten years from the
date of grant. Options to purchase 3,921,600 shares of common stock were
available for future grants under the 2000 Plan at December 31, 2000.
The following table summarizes option activity in aggregate under the 1993 and
2000 Plans for each of the years ended December 31:
2000 1999 1998
------------------- ------------------- -------------------
Wtd. Wtd. Wtd.
Avg. Ex. Avg. Ex. Avg. Ex.
Shares Price Shares Price Shares Price
------------------- ------------------- -------------------
Outstanding at
beginning of year 2,284,030 $17.41 1,937,530 $16.06 1,187,200 $13.46
Granted 2,447,900 35.49 414,100 23.25 902,640 19.31
Exercised (206,065) 19.17 (61,370) 13.52 (8,350) 6.26
Forfeited (512,430) 25.83 (6,230) 21.55 (143,960) 15.63
------------------- ------------------- -------------------
Outstanding at
end of year 4,013,435 $27.28 2,284,030 $17.41 1,937,530 $16.06
=================== =================== ===================
Exercisable at
end of year 1,450,958 $24.42 812,020 $14.99 668,460 $14.11
=================== =================== ===================
Weighted average
fair value of
options granted $24.01 $14.51 $12.37
======= ======= =======
The options outstanding at December 31, 2000 under the 1993 and 2000 Plans have
exercise price ranges and weighted average contractual lives as follows:
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Number Wtd.Avg. Number
Range of Outstanding at Remaining Wtd. Avg. Exercisable Wtd. Avg.
Exercise December Contractual Exercise at December Exercise
Prices 31, 2000 Life Price 31, 2000 Price
- --------------- ---------------- --------------- ------------- --------------- -------------
$5.00-$6.625 24,900 3.5 years $ 5.97 24,900 $ 5.97
$7.875-$10.50 100,000 3 years $ 7.88 100,000 $ 7.88
$11.875-$15.625 910,500 8 years $14.21 473,600 $15.57
$18.75-$28.125 1,428,195 9 years $22.93 364,438 $20.71
$28.25-$41.875 1,178,340 9 years $36.51 458,020 $40.71
$44.00-$61.50 371,500 11.5 years $53.41 30,000 $61.50
--------- ---------
4,013,435 1,450,958
========= =========
43
Included in option grants under the 1993 Plan are 50,000 option shares granted
in 1998 to outside patent counsel for patent and other legal services. These
options were granted at an exercise price of $18.75 per share and vest ratably
over three years. The estimated fair value of these options at the date of grant
was approximately $10.62 per share or $532,000 based on a Black-Scholes
option-pricing model. In November 1999, the Company accelerated vesting for
these options and all remaining options are fully exercisable. The estimated
fair value of these options was measured as of the date of acceleration using
the Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 4.50%, no expected dividend yield, expected life of four years
and expected volatility of 60%. This measurement date resulted in an increase in
the fair value estimate of approximately $145,000. The estimated fair value of
these options was amortized to expense in 1998 and 1999.
Also included in options granted under the 1993 Plan are 50,000 options granted
in 1997 to outside counsel under a five year consulting agreement. These options
were granted at an exercise price of $15.125 per share and vested ratably over
five years. In 1998, the consulting agreement was cancelled, and 40,000 unvested
options were forfeited. The estimated fair value of the vested portion of the
option is approximately $8.20 per share or $82,000, which was amortized to
expense in 1998. The fair value of this option was estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: risk free interest rate of 6.63%, no expected dividend
yield, expected life of 7 years and expected volatility of 40%.
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 stock offerings. Non-plan options and
warrants are generally granted with exercise prices equal to fair market value
at the date of grant. The following table summarizes activity related to
non-plan options and warrants for each of the years ended December 31:
2000 1999 1998
------------------- ------------------- -------------------
Wtd. Wtd. Wtd.
Avg. Ex. Avg. Ex. Avg. Ex.
Shares Price Shares Price Shares Price
------------------- ------------------- -------------------
Outstanding at
beginning of year 1,761,625 $21.03 1,146,625 $16.78 680,000 $12.94
Granted 1,058,950 45.23 625,000 28.65 516,625 21.17
Exercised (298,500) 10.44 (10,000) 10.00 (50,000) 10.00
Forfeited (400,000) 30.00 0 0
------------------- -------------------- -------------------
Outstanding end of
year 2,122,075 $32.91 1,761,625 $21.03 1,146,625 $12.94
=================== ==================== ===================
Exercisable at
end of year 677,547 $13.97 750,650 $14.575 665,325 $12.94
=================== ==================== ===================
Weighted average
fair value of
options granted $12.43 $20.20 $14.11
======= ======= =======
44
The non-plan options and warrants outstanding at December 31, 2000 have exercise
price ranges and weighted-average contractual lives as follows:
Options/Warrants Outstanding Options/Warrants Exercisable
---------------------------------------------------- --------------------------------
Number Wtd.Avg. Number
Range of Outstanding at Remaining Wtd. Avg. Exercisable Wtd. Avg.
Exercise December Contractual Exercise at December Exercise
Prices 31, 2000 Life Price 31, 2000 Price
- --------------- ---------------- --------------- ------------- --------------- -------------
$5.00 50,000 3 years $ 5.00 50,000 $ 5.00
$10.00 101,500 0.5 years $10.00 101,500 $10.00
$15.125-$22.50 696,625 5.5 years $21.51 401,047 $21.62
$23.25-$30.00 391,492 8 years $27.26 125,000 $28.65
$35.41-$37.68 352,983 11.5 years $36.55 0
$56.66 529,475 11.5 years $56.66 0
--------- -------
2,122,075 677,547
========= =======
Included in non-plan options and warrants are 1,058,950 warrants issued in
connection with the May 2000 sale of equity securities to Tyco International and
Leucadia National (see Note 16). These warrants vest from November 2001 to May
2002 at exercise prices ranging from $28.33 to $56.66 per share and expire ten
years from the date they first become vested. The warrants have an estimated
fair market value of $12.43 per share, or $13,165,395. The fair value was
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions: risk free interest rate of
6.5%, no expected dividend yield, expected lives of four to five years and
expected volatility of 60%.
Also included in non-plan options and warrants are 25,000 option shares granted
in 1998 to outside patent counsel for patent and other legal services. These
options were granted at an exercise price of $18.75 per share and vest ratably
over three years. The estimated fair value of these options at the date of grant
was approximately $10.62 per share or $265,000 based on a Black-Scholes
option-pricing model. In November 1999, the Company accelerated vesting for
these options and all remaining options are fully exercisable. The estimated
fair value of these options was measured as of the date of acceleration using
the Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 4.50%, no expected dividend yield, expected life of four years
and expected volatility of 60%. This measurement date resulted in an increase in
the fair value estimate of approximately $72,000. The estimated fair value of
these options was amortized to expense in 1998 and 1999.
Also included in non-plan options and warrants is an option to purchase 15,000
shares of the Company's common stock granted in November 1998 to an outside
consultant in exchange for administrative services rendered. This option has an
exercise price of $18.75 per share, is fully exercisable and expires five years
from the date of grant. The estimated fair value of this option is approximately
$6.95 per share or approximately $104,250, which has been expensed in the
accompanying consolidated statement of operations in 1998. The fair value is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk free interest rate of 4.70%, no
expected dividend yield, expected life of two years and expected volatility of
62%.
45
Also included in non-plan options and warrants are 200,000 warrants granted in
1996 to Whale Securities Co., L.P. ("Whale") and its designees under a five year
financial consulting and advisory agreement. These warrants were granted with an
exercise price of $10.00 per share, are fully exercisable and expire five years
from the date of grant. The estimated fair value of the warrants at the date of
grant was $2.56 per share, or $512,000. The fair value was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 6.34%, no expected dividend yield,
expected life of two years and expected volatility of 40%. The fair value of
these warrants was included in other assets and amortized to expense over the
term of the consulting agreement. In 1999, the Company ceased utilizing services
under the agreement, and expensed the remaining unamortized portion of the fair
value related to these warrants in the accompanying consolidated statement of
operations.
COMPENSATION COSTS
The Company's employee stock options are accounted for under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
this plan been determined consistent with SFAS No.123, the Company's net loss
and net loss per share would have been increased to the following pro forma
amounts:
2000 1999 1998
------------- ------------ ------------
Net Loss: As Reported $(13,021,773) $(9,741,392) $(4,706,398)
Pro Forma (37,326,143) (13,772,578) (9,010,611)
Basic Net Loss Per Share: As Reported $(1.03) $(0.83) $(0.41)
Pro Forma (2.94) (1.17) (0.79)
The fair value of each employee option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998:
2000 1999 1998
------------- ------------- --------------
Expected volatility 59%-69% 57%-60% 62%
Risk free interest rate 5.56%-6.78% 5.31%-6.08% 4.70% to 5.98%
Expected life 1-15 years 4-11 years 2-11 years
Dividend yield -- -- --
15. ACQUISITION
-----------
On March 10, 2000, the Company completed the acquisition of substantially all
the assets of Signal Technologies, Inc. ("STI"), a Florida subchapter S
corporation specializing in radio-frequency design services. The purchase price
of approximately $1,997,000 was fully paid in the Company's newly issued Series
D Preferred Stock (see note 16). The acquisition was accounted for as a purchase
under
46
Accounting Principles Board Opinion No. 16 (APB 16). In accordance with APB 16,
a portion of the purchase price has been allocated to assets acquired based on
the fair value at the date of the acquisition, while the balance of
approximately $365,000 was recorded as goodwill and is being amortized over five
years on a straight line basis. The operating results of the acquired business
have been included in the Consolidated Statement of Operations from the date of
acquisition.
Unaudited pro forma consolidated results of operations have not been presented
as if the acquisition of STI had been made at the beginning of the periods
presented. The effect of the acquisition on the consolidated financial
statements for 2000 and 1999 is not significant and would not have been
materially different from the reported amounts for 2000 and 1999.
16. STOCK AUTHORIZATION AND ISSUANCE:
---------------------------------
PREFERRED STOCK
In March 2000, the Company issued 78,868 shares of Series D Preferred Stock, $1
par value, $25 stated value, for the acquisition of substantially all of the
assets of Signal Technologies, Inc. ("STI"). The Company also issued an
aggregate of 34,151 shares of Series A, B, and C Preferred Stock, $1 par value,
$25 stated value as signing bonuses and compensation under employment contracts
for certain employees of STI.
The Series D Preferred Stock is convertible at the holder's option at any time
on or after March 10, 2001 and shall automatically convert on March 10, 2002.
The Series A, B and C Preferred Stock is automatically converted to common stock
as follows:
# of Preferred Shares Conversion Date
---------------------------------------
Series A 6,795 March 10, 2001
Series B 13,678 March 10, 2002
Series C 13,678 March 10, 2003
The Series A, B, and C Preferred Stock is cancelable prior to the conversion
date if the employment of the holder of the preferred shares is terminated for
cause or due to death, or in the event that a minimum number of defined key
employees are no longer employed by the Company.
The conversion rate for Series A, B, C and D Preferred Stock is determined by
dividing the stated value of the preferred stock by the market value of the
common stock determined based on the average closing bid price of the common
stock for five consecutive trading days immediately prior to the conversion
date. Holders of the convertible preferred stock are not entitled to dividends
and have no voting rights, except as required by applicable law. The convertible
preferred stock is senior to the common stock with respect to liquidation
events.
47
COMMON STOCK
In May 2000, the Company issued an aggregate of 1,058,950 shares of its common
stock to Tyco International, Inc. and Leucadia National in a private placement
transaction. The shares, which constituted approximately 8% of the Company's
outstanding common stock on an after-issued basis, were sold at a price of
$28.33 per share, for net proceeds of approximately $30,000,000.
On December 1, 1998, the Company issued 238,096 shares of its common stock to
Questar InfoComm, Inc. in a private placement transaction. The shares, which
constituted approximately 2% of the Company's outstanding common stock on an
after-issued basis, were sold at a price of $21.00 per share, for net proceeds
of approximately $5,000,000.
17. SUBSEQUENT EVENT
----------------
On March 8, 2001, the Company issued an aggregate of 83,451 shares of its common
stock to Texas Instruments, Inc. in a private placement transaction. The shares,
which constituted less than 1% of the Company's outstanding common stock on an
after-issued basis, were sold at a price of $29.96 per share, for net proceeds
of approximately $2,500,000. In connection with this offering, the Company
issued warrants for the purchase of 83,451 additional shares of its common stock
at exercise prices ranging from $29.96 to $39.84 per share.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 12, 1999, the Company selected PricewaterhouseCoopers LLP to replace
Arthur Andersen LLP as its independent certified public accountants. The
decision to change auditors was approved by the board of directors of the
Company.
Arthur Andersen LLP's report on the financial statements of the Company as of
December 31, 1998 and for each of the two years in the period ended December 31,
1998 did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the two years ended December 31, 1998, and the subsequent interim period,
there were no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP would have caused Arthur Andersen LLP to make reference to the
subject matter of the disagreements in connection with their audit reports with
respect to financial statements of the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Election of Directors" in the
Company's definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders, which will be filed with the Commission pursuant to Regulation 14A
under the Securities and Exchange Act of 1934, as amended, (the "2001 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Election of Directors - Executive
Compensation" in the 2001 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of Certain
Beneficial Owners" in the 2001 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Election of Directors - Certain
Relationships and Related Transactions" in the 2001 Proxy Statement is
incorporated herein by reference.
49
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description
- -------- ----------------------------------------------------------------------
3.1 Articles of Incorporation, as amended (incorporated by reference from
Exhibit 3.1 of Registration Statement No. 33-70588-A)
3.2 Amendment to Amended Articles of Incorporation dated March 6, 2000
(incorporated by reference from Exhibit 3.2 of Annual Report on Form
10-K for the year ended December 31, 1999)
3.3 Bylaws, as amended (incorporated by reference from Exhibit 3.2 of
Annual Report on Form 10-K for the year ended December 31, 1998)
3.4 Amendment to Certificate of Incorporation dated July 17, 2000
(incorporated by reference from Exhibit 3.1 of Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000)
4.1 Form of common stock certificate (incorporated by reference from
Exhibit 4.1 of Registration Statement No. 33-70588-A)
4.2 Purchase option agreement dated September 5, 1997 between the
Registrant and Financial Consultant (incorporated by reference from
Exhibit 4.7 of Annual Report on Form 10-KSB for the period ended
December 31, 1997)
4.3 Purchase Option between the Registrant and Tyco Sigma Ltd. dated May
22, 2000 (incorporated by reference from Exhibit 4.1 of Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000)
4.4 Purchase Option between the Registrant and Leucadia National
Corporation dated May 22, 2000 (incorporated by reference from Exhibit
4.2 of Quarterly Report on Form 10-Q for the quarter ended June 30,
2000)
4.5 Purchase Option between the Registrant and David M. Cumming dated May
22, 2000 (incorporated by reference from Exhibit 4.3 of Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000)
4.6 Purchase Option between the Registrant and Peconic Fund Ltd. dated May
22, 2000 (incorporated by reference from Exhibit 4.4 of Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000)
50
4.7 Purchase Option between the Registrant and Texas Instruments, Inc..
dated March 8, 2001*
10.1 Lease dated March 1, 1992 between the Registrant and Jeffrey Parker
and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida
(incorporated by reference from Exhibit 10.1 of Registration Statement
No. 33-70588-A)
10.2 1993 Stock Plan, as amended (incorporated by reference from the
Company's Proxy Statement dated October 1, 1996)
10.3 Stock option agreement dated October 11, 1993 between the Registrant
and Jeffrey Parker (incorporated by reference from Exhibit 10.13 of
Registration Statement No.33-70588-A)
10.4 Form of indemnification agreement between the Registrant and each of
the directors and officers of the Registrant (incorporated by
reference from Exhibit 10.15 of Registration Statement No.33-70588-A)
10.5 First amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.21 of
Annual Report on Form 10-KSB for the year ended December 31, 1995)
10.6 Second amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.1 of
Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1996)
10.7 Third amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.19 of
Annual Report on Form 10-KSB for the period ended December 31, 1996)
10.8 Employment agreement dated July 23, 1998 between the Registrant and
Richard L. Sisisky (incorporated by reference from Exhibit 10.4 of
Registration Statement No. 333- 62497)
10.9 Stock option agreement (vesting) dated July 23, 1998 between the
Registrant and Richard L. Sisisky (incorporated by reference from
Exhibit 10.4 of Registration Statement No. 333- 62497)
51
10.10 Stock option agreement (acceleration) dated July 23, 1998 between the
Registrant and Richard L. Sisisky (incorporated by reference from
Exhibit 10.4 of Registration Statement No. 333- 62497)
10.11 Asset Purchase Agreement dated March 2, 2000 between the Registrant
and Signal Technologies, Inc., a Florida corporation (incorporated by
reference from Exhibit 10.13 of Annual Report on Form 10-K for the
period ended December 31, 1999)
10.12 License Agreement between the Registrant and Symbol Technologies,
Inc., a Delaware corporation (incorporated by reference from Exhibit
10.19 of Annual Report on Form 10-K for the period ended December 31,
1999)
10.13 Subscription agreement between the Registrant and Tyco Sigma Ltd dated
May 22, 2000 (incorporated by reference from Exhibit 10.1 of Quarterly
Report on Form 10-Q for the period ended June 30, 2000)
10.14 Subscription agreement between the Registrant and Leucadia National
Corporation dated May 22, 2000 (incorporated by reference from Exhibit
10.2 of Quarterly Report on Form 10-Q for the period ended June 30,
2000)
10.15 Transfer and registration rights agreement between the Registrant and
Peconic Fund Ltd. dated May 22, 2000 (incorporated by reference from
Exhibit 10.3 of Quarterly Report on Form 10-Q for the period ended
June 30, 2000)
10.16 Subscription agreement between the Registrant and Texas Instruments,
Inc.dated March 8, 2001*
22.1 Table of Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
99.1 Risk Factors*
* Filed herewith
(b) REPORTS ON FORM 8-K
None.
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PARKERVISION, INC.
Date: March 30, 2001 By: /s/ Jeffrey L. Parker
----------------------
Jeffrey L. Parker
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
By: /s/ Jeffrey L. Parker Chief Executive Officer and Chairman March 30, 2001
------------------------- of the Board (Principal Executive Officer)
Jeffrey L. Parker
By: /s/ Richard L. Sisisky President, Chief Operating Officer and March 30, 2001
------------------------- Director
Richard L. Sisisky
By: /s/ David F. Sorrells Chief Technical Officer and Director March 30, 2001
-------------------------
David F. Sorrells
By: /s/ Stacie Wilf Secretary, Treasurer and Director March 30, 2001
-------------------------
Stacie Wilf
By: /s/ Cynthia L. Poehlman Chief Accounting Officer March 30, 2001
------------------------- (Principal Accounting Officer)
Cynthia L. Poehlman
By: /s/ William A. Hightower Director March 30, 2001
-------------------------
William A. Hightower
By: /s/ Richard Kashnow Director March 30, 2001
-------------------------
Richard Kashnow
By: /s/ Amy L. Newmark Director March 30, 2001
-------------------------
Amy L. Newmark
By: /s/ Todd Parker Director March 30, 2001
-------------------------
Todd Parker
By: /s/ William L. Sammons Director March 30, 2001
-------------------------
William L. Sammons
By: /s/ Oscar S. Schafer Director March 30, 2001
-------------------------
Oscar S. Schafer
By: /s/ Robert G. Sterne Director March 30, 2001
-------------------------
Robert G. Sterne
53
PARKERVISION, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Balance at Provision Balance at
Valuation Allowance for Beginning Charged to End of
Inventory Obsolescence of Period Expense Write-Offs Period
- ------------------------------ ---------- --------- ---------- ----------
Year ended December 31, 1998 417,052 210,000 (219,706) 407,346
Year ended December 31, 1999 407,346 240,000 (143,534) 503,812
Year ended December 31, 2000 503,812 320,000 (55,527) 768,285
Balance at Balance at
Valuation Allowance for Income Beginning End of
Taxes of Period Provision Write-Offs Period
- ------------------------------ ---------- --------- ---------- ----------
Year ended December 31, 1998 5,323,118 2,522,765 0 7,845,883
Year ended December 31, 1999 7,845,883 4,236,628 0 12,082,511
Year ended December 31, 2000 12,082,511 7,150,476 0 19,232,987
54
EXHIBIT INDEX
4.7 Purchase Option between the Registrant and Texas Instruments, Inc..
dated March 8, 2001
10.16 Subscription agreement between the Registrant and Texas Instruments,
Inc. dated March 8, 2001
22.1 Table of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Risk Factors
55