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, 2002
( ) 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 ( ).
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of June 28, 2002, the aggregate market value of the Issuer's Common Stock,
$.01 par value, held by non-affiliates of the Issuer was approximately
$185,003,931 (based upon $19.18 per share closing price on that date, as
reported by The Nasdaq National Market).
As of March 24, 2003, 14,090,095 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 2003 Annual Meeting are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Available Information and Access to Reports
- -------------------------------------------
ParkerVision, Inc. (the "Company") files its annual report on Form 10-K and
quarterly reports on Form 10Q, including amendments, as well as its proxy and
other reports electronically with the SEC. The SEC maintains an Internet site
(http://www.sec.gov) where these reports may be obtained at no charge.
Copies of these reports may also be obtained via the Company's website at
www.parkervision.com via the link "SEC filings". This provides a direct link to
the Company's reports on the SEC Internet site.
The Company will provide copies of this annual report on Form 10-K and the
quarterly reports on Form 10-Q, including amendments, filed during the current
fiscal year upon written request to:
Investor Relations
8493 Baymeadows Way
Jacksonville, Florida 32256
These reports will be provided at no charge. In addition, exhibits may be
obtained at a cost of $.25 per page plus $5.00 postage and handling. These
reports will be available from the Company after they are filed with the
Securities and Exchange Commission ("SEC").
Copies of any materials filed with the SEC may also be obtained from the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information
on the operation of the SEC Public Reference Room may be obtained by calling the
SEC at 1-800-SEC-0330.
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Description of Company and 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 Division and the Wireless Division. The Wireless Division operates
under the name Direct2Data Technologies.
Video Division
- --------------
The Video Division is engaged in the design, development and marketing of
automated live television production systems, marketed under the tradename
PVTV(TM), and automated video camera control systems, marketed under the
tradename CameraMan(R). The Company also provides training, support and other
services related to these products.
The Company's PVTV systems are targeted primarily at, and sold directly to
broadcasters in the US and Canada. The Company also markets corporate and
education-based PVTV systems that are sold either directly by the Company and
through audio-visual dealers in the US and Canada.
The Company's automated video camera control systems currently include a
three-chip product offering. In 2002, the Company discontinued the manufacture
and sale of its single-chip systems due to supply issues for certain key
components, declining demand, and the Company's desire to focus available
research and development resources on its PVTV solutions and related products.
The Company's three-chip product offering is targeted at broadcasters and other
users of higher-end camera products and is sold directly by the Company to the
broadcast market and through audiovisual dealers in the corporate and education
segments of the market.
The Company's Video Division revenue percentages by product and/or service lines
are as follows:
Product/Service 2002 2001 2000
------------------------------- -------- -------- --------
PVTV systems 64% 24% 36%
CameraMan systems (stand-alone) 26% 66% 59%
Training and other services 4% 3% 3%
Recurring & other support 6% 7% 2%
The Company's PVTV systems are designed specifically to meet the needs of studio
production markets. The PVTV product line includes a professional, broadcast
television quality video production system that integrates video, audio,
teleprompter, machine control such as VTRs, audio and video servers, character
generators and still stores as well as camera control functions into an
intelligent one or two-operator station. PVTV systems also typically incorporate
two or more of the Company's three chip camera systems. The system is designed
to allow organizations to economize resources by maximizing their production
capabilities. A single operator can control, in parallel, the production
functions that require as many as four to twelve individuals to operate using
traditionally available broadcast equipment.
While the Company has focused almost all its sales and marketing efforts on PVTV
NEWS(TM) systems for the US and Canada broadcast markets, it believes there are
many other attractive vertical markets to penetrate, including education,
corporate, government and religious markets.
The CameraMan systems were initially developed to allow the creation of
professional-quality video
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communication by non-professional video users. The Company markets its CameraMan
systems to certain educational and videoconferencing segments of the commercial
market that utilize audiovisual solutions for various communicating, training,
presenting, and educating needs. The Company offers its CameraMan products in a
variety of application-specific packages designed for these markets. These
packages now include only three-chip imaging cameras. The Company also offers a
higher quality digital three-chip CameraMan system targeted toward the broadcast
and professional video user.
The Company also offers experienced professional services that complement the
PVTV system purchase. ParkerVision utilizes in-house trainers, project managers
and support staff to guide the broadcaster through the transition from a
traditionally manual production environment to an automated control room system
as well as provide extended support services after the transition is completed.
Managing the transition to automation in a broadcast environment requires
extensive planning and training. Training includes a basic PVTV system overview,
advanced functionality and workflow processes, shadowing existing newscasts to
simulate the process, talent rehearsals and finally recovery training so that
PVTV operators are properly prepared for the transition.
During 1998 and 1999, the Company sold its PVTV systems to a few beta or "pilot"
sites in broadcast, corporate and education markets. The Company worked
extensively with these sites to increase the technological capabilities of its
system. The first beta site was Cablevision's News 12-The Bronx, which commenced
operations in June 1998. Since that time, News 12-The Bronx has produced
thousands of hours of live news and in the fourth quarter of 2002, Cablevision
purchased PVTV systems for all five of its News 12 operations in the metro New
York City area, including the purchase of an upgraded system for its Bronx
station.
In 1999, the Company introduced a digital version of its PVTV NEWS package and
an education-based system marketed under the tradename PVTV Learning(TM). During
2000, the Company continued to enhance the features, functionality and third
party interfaces of its PVTV systems. The Company sold PVTV systems to nine
stations owned by The Ackerley Group which was subsequently acquired by Clear
Channel Communications, Inc. These sales and services accounted for
approximately $4,700,000 in revenue to the Company, or approximately 30% of the
Company's revenues in 2000.
In 2001 and 2002, the broadcasting industry experienced a downturn with
significant decreases in advertising revenue and resulting profits. Despite
these industry trends, the Company continued to gain momentum in the broadcast
industry. In the second half of 2001, the Company received purchase contracts
from two large station ownership groups, LIN Television Corporation and
McGraw-Hill Broadcasting Company, Inc. Late in 2001 and throughout 2002, these
two ownership groups purchased and installed a total of ten PVTV systems. The
Company currently has an installed base of approximately 40 live television
newsrooms in the United States, Canada, and Puerto Rico.
The Company's development efforts continued to focus on enhancements to the PVTV
product line, including a scaled down offering of systems. The less expensive
systems have limited features and functionality and target corporate and
education markets while the more expensive systems target the broadcast news
market. In 2002, the Company introduced its highest-end digital PVTV NEWS
system, called the CR4000(TM), which is specifically targeted for broadcast
networks and larger market local broadcast stations.
The Company believes its PVTV system has the potential for becoming the de facto
industry standard for live television newsrooms. Based on this belief, the
Company has sought to protect key
4
aspects of its intellectual property with multiple patent filings, including
both apparatus and methodology claims. The Company was granted its first PVTV
U.S. patent in September 2002.
Wireless Division
- -----------------
The Company's Wireless Division is engaged in the development and initial
marketing of integrated circuits ("IC's") based on its Direct2Data(TM), or
D2D(TM), technology. The D2D technology is a wireless Direct Conversion radio
frequency ("RF") technology that the Company believes offers significant
advantages and improvements over the traditional radio circuit architectures
utilized in wireless communications. The Company is initially targeting wireless
local area networking ("WLAN") applications for its technology, but believes the
technology is applicable to many other markets. The Company completed its first
production-ready, highly integrated WLAN RF transceiver IC's in 2002 and will
commence active marketing in the first half of 2003.
The Company's D2D technology reduces the complexity, cost, size, and power
consumption of radio transceivers when compared with the traditional Super
Heterodyne-based radio transceivers. Super heterodyne-based radios have
historically been the most widely deployed radio circuit architecture utilized
in wireless communications. Super heterodyne receivers process RF carriers via
one or more Intermediate Frequency ("IF") steps before achieving extraction of
the modulated data in the form of an analog baseband waveform.
Traditionally-constructed Super-heterodyne RF front-ends are built from multiple
discrete components and sub-systems whereby each step is constructed from
circuits that can be highly isolated from each other in a practical
implementation. This high degree of isolation allows for the achievement of what
the industry considers to be excellent levels of RF front-end performance,
usually referenced in terms of large dynamic range, excellent sensitivity, and
high levels of adjacent channel rejection, among other attributes.
The Company believes that integrating complete Super-heterodyne architectures
(including such functions as RF to baseband converters, IF filters and
amplifiers, RF and IF synthesizers, baseband amplifiers and channel filters)
into silicon chips on a single monolithic die (chip) has resulted in the
degradation of certain performance characteristics when compared to the
traditionally-constructed Super-heterodyne RF front-end which is built from a
combination of discrete components with some of the Super-heterodyne
architecture as silicon chip sub-systems. The Company believes this degradation
is problematic to designers who employ such RF front-ends in products requiring
high performance. The Company also believes that it is not practical to
implement certain sub-systems of a Super-heterodyne receiver into silicon
circuits, such as the required IF filters and the various isolation requirements
necessary between the multiple local oscillators and conversion stages.
The industry has more recently been trending toward the development of direct
conversion RF architectures for achieving higher levels of circuit integration
in semiconductors. Direct Conversion RF transceivers are now emerging and
gaining in popularity as a replacement for the decades-old Super-heterodyne
radio. Direct Conversion is defined as a single-step conversion of RF to
baseband and visa/versa. Direct Conversion is also referred to as zero
Intermediate Frequency or zero-IF.
There are also proclaimed Direct Conversion architectures which are emerging in
popularity where the RF carrier is processed to a lower IF which is then
digitally sampled and demodulated to baseband data. The Company believes these
emerging Direct Conversion architectures are based on traditional heterodyne
mixers as the fundamental RF-to-baseband building block of the direct conversion
RF front-end. The Company believes that the heterodyne mixer was largely
developed as a frequency translator device, which is how it is used in
Super-heterodyne architectures. In direct conversion architecture, however, the
heterodyne mixer is deployed as a data extraction device, and the Company
believes that there are fundamental shortcomings and design challenges in using
a
5
heterodyne mixer for single-step data extraction.
The Company believes its D2D technology enables significant advantages when
compared with other Direct Conversion RF transceivers. The Company believes that
the traditional heterodyne-based approach to Direct Conversion cannot
sufficiently balance the many objectives of the RF transceiver as effectively as
the D2D-based transceivers. For example, it is common to find in a
heterodyne-based Direct Conversion approach that in order to achieve desired
receiver sensitivity, other desired attributes including power consumption,
adjacent channel rejection and immunity to random jamming are compromised. The
Company believes the D2D technology represents a significant improvement over
alternate circuit approaches for achieving higher levels of RF front-end circuit
integration without compromising other significant objectives such as power
consumption and performance.
The Company believes that Direct Conversion is the most likely architecture to
achieve the highest levels of circuit integration while simultaneously achieving
the lowest power consumption and the highest performance of a variety of sought
after attributes in RF transceivers. The Company believes that it has a unique
approach to actual Direct Conversion transceiver design and implementation.
The Company's D2D technology represents innovative new circuit architecture for
constructing RF front-ends (transmitters, receivers and transceivers), for which
the Company has received patents covering the fundamental transmitter and
receiver application of the technology. D2D circuits replace RF heterodyne
circuit architectures that have been the traditional approach for transceivers
since the advent of wireless communication. The Company's D2D 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 channel filters onto the same IC as the RF up and
down-conversion.
In 1998, the Company announced that its D2D technology allowed for a single-step
direct conversion of a received modulated RF carrier signal to its analog
baseband data waveform. The Company also determined that its D2D technology
could be applied to RF transmitter use for producing direct single-step
up-conversion for on-channel modulated RF carriers.
During 1998 and 1999, the Company focused much of its efforts on filing patents
to protect its intellectual property and continued to develop technology
enhancements. The Company also focused its development efforts on verifying the
applicability of its D2D technology to specific industry standards-based
applications, including the IEEE 802.11b WLAN standard.
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 technology. The Company also started the process
of developing integrated circuits for the development of a highly integrated
CDMA 2000 RF front-end chipset; however, the Company focused its development
resources on the completion of a complete IEEE 802.11 WLAN product line which
includes 802.11b, 802.11g, and 802.11a/b/g combo products. Although the Company
has completed a CDMA RF transceiver prototype, has implemented many circuits
used within a CDMA transceiver in semiconductors, and may pursue a CDMA product
offering in the future, it cannot accurately predict when or if its initial CDMA
product offering might emerge as the Company's research and development
resources have been primarily focused on completion of a complete 802.11 product
line.
In March 2000, the Company acquired substantially all of the assets of Signal
Technologies, Inc., a
6
privately owned, Orlando, Florida based RF design firm which had previously
provided application engineering and design services to the Company for the D2D
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.
Since the acquisition in 2000, the Company has continued to expand its
facilities and its engineering personnel in Orlando. In 2001, the Company closed
its wireless design centers in California and Utah and consolidated its
development efforts in the Orlando and Jacksonville facilities.
In the first half of 2001, the Company completed the design of its first
highly-integrated 2.4 GHz IEEE 802.11b WLAN D2D-based RF transceiver IC's. The
Company entered into an agreement with Texas Instruments Incorporated ("TI") for
the manufacture of D2D-based IC's using various TI semiconductor processes, and
subsequently transitioned to the TI semiconductor process. In early 2002, the
Company announced the completion of its first product, the PV-1000, 802.11b WLAN
transceiver IC. In the second half of 2002, the Company also announced
availability of its PV-2000 product, an 802.11g RF transceiver that is also
compatible for use with 802.11a/b/g combo standards. Both the PV-1000 and
PV-2000 are currently ready and available for volume production.
The Company has successfully achieved high levels of RF transceiver integration
for the IEEE 802.11b and 802.11g standards and believes it will achieve at least
this same level of integration for complete 802.11a/b/g transceivers within the
next 12 months. In addition, the Company has announced its plans to provide a
complete 802.11 a/b/g WLAN solution, which includes not only the D2D-based
transceiver, but also the baseband processor and medium access controller
("baseband/MAC").
Although the Company's WLAN IC's are ready for commercial use, it is possible
that such IC's could require further design modifications based on customer
requirements. Although the Company is not aware of any such requirements at this
time, it is not uncommon for multiple iterations of IC's for certain customer
requirements to occur before a commercially attractive product is achieved for
those customers. Each iteration, if required, is typically a ten to sixteen week
process after completion of the design modification, due to semiconductor
foundry process lead-times and packaging.
The Company also believes that receipt of its initial IC orders are dependent
upon the Company's ability to demonstrate that its WLAN transceivers interface
to other companies' 802.11 baseband/MAC IC's and achieve certain performance,
price, and form factor criteria which will create the basis for complete product
designs. These complete designs are often referred to as "reference designs".
Although the Company has designed its RF IC's with what it believes to be the
flexibility to interface with a variety of baseband/MAC products there are no
guarantees that other companies will provide access to their IC's or support
information to allow successful interfaces to occur or that they will make their
baseband/MAC IC's available to the Company or to the Company's prospective
customers.
The Company has recently completed what it believes to be a successful first
reference design in the form of a PCMCIA card. This reference design can be
further modified for other form factors and interfaces such as PCI and USB
interfaces in order to create what the Company believes will represent a
complete 802.11b product line. The reference design is the result of the
Company's successful collaboration and interfacing of its WLAN RF transceiver to
a third party company's 802.11b baseband processor/MAC. The Company believes
that it will be able to offer its reference designs to customers and that the
third party will make available in volume quantities its baseband/MAC IC's to
either the Company or the Company's customers. The Company is also
7
working with this third party supplier as well as others to create interfaces
and reference designs for 802.11g, 802.11a/b, and 802.11a/b/g products; however,
it does not believe that those products will be available for sale until
sometime in the 4th quarter 2003 or early 2004 depending on the availability of
production quantities of baseband processor/MAC IC's.
The Company believes that its initial 802.11b reference design is the first
practical demonstration, in a complete product, of the fundamental advantages
achieved by its D2D RF technology. Examples of the advantages achieved are
measured in performance attributes that directly impact link availability in a
wireless local area network. These performance attributes include the aggregate
performance measures of operational dynamic range, adjacent channel rejection,
received large and small signal operating range, and linearity. The Company
believes that its reference design achieves the best figures of merit in the
aggregate, including power consumption, total manufactured costs and link
availability attributes, among others, of any 802.11b direct conversion
reference design that it is aware of and therefore delivers the best link
availability in actual application. Since the Company does not have access to
all other RF transceiver offerings, it cannot be certain of its cost, power
consumption and performance comparisons to all other competitive offerings that
may exist.
PRODUCTS
- --------
Video Division
- --------------
The Company's patented and patents-pending PVTV system provides fully integrated
PC-based production control room systems with Transition Macro(TM) automation
technology. This proprietary automation 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 from a single or multi-user interface.
This "event driven" technology also allows the operator to manually pause or
interrupt the automated production, as needed, to make dynamic changes for
requirements such as late breaking news, non-scripted events such as election
coverage and last minute story changes. PVTV Systems include scalable solutions
with an integrated video switcher, digital video effects, keyers, audio mixer,
ScriptViewer(TM) automated teleprompter and control ports for third party
equipment control. PVTV systems seamlessly integrate with newsroom computer
systems, character generator and still store graphic systems, VTR and
video/audio server equipment, audio mini-disk players, closed caption encoders
in addition to other required interfaces to the broadcast control room. In
addition, the PVTV systems can work with the Company's CameraMan 3-CCD camera
systems and/or manually operated or robotic cameras produced by other
manufacturers.
The PVTV product line is currently available in three application-specific
packages: PVTV NEWS targeted for broadcast and cable production markets, PVTV
PRO(TM) targeted for corporations and government facilities and PVTV Learning
targeted at educational environments including high schools, colleges and
universities.
The PVTV NEWS system is a switchable 4:3/16:9 aspect ratio digital production
system that adds proprietary functionality such as the Transition Macro and Late
Breaking News Keys(TM) technologies that allows for "event driven" automation
for a one or two person live production control room. Rundown Converter(TM)
technology is also provided to integrate News Automation Systems such as AVID's
"iNEWS", Associated Press's "ENPS" and others to directly program the PVTV 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.
8
The broadcast news industry measures market size in terms of Designated Market
Area ("DMA"). DMA is a designation for measuring the viewing market share of
television stations. There are currently 210 DMA's throughout the United States
with DMA 1 representing the largest viewing market and DMA 210 representing the
smallest viewing market. The PVTV NEWS product line includes five distinct
system packages ranging from the newly introduced CR4000 targeted for networks
and large market television stations in DMA 1-25 down to the CR500 targeted for
local news television stations above DMA 175. PVTV NEWS systems can also be used
in cost efficient applications for secondary control rooms for breaking news,
news cut-ins and digital multicasting "B", "C" and "D" control rooms. The
Company has installed systems in live television newsrooms in DMA markets
ranging from 18 to 205, and in live cable television newsrooms in DMA market 1,
the New York City area.
The PVTV NEWS systems are generally available in single or dual packages. The
dual package provides for system redundancy and gives directors more flexibility
in programming back-to-back newscasts. The list prices for PVTV NEWS systems
generally range from $220,000 to $850,000.
In addition, the Company designed its XSWITCH(TM) product that allows for
seamless interface between dual PVTV systems for system redundancy and backup as
well as to ease the transition from traditional control room environments to
automated live production control room automation with PVTV.
The PVTV PRO and Learning systems are the baseline "value" priced offerings for
the corporate and education markets, respectively. The PVTV PRO system targets
corporate webcast applications such as CEO addresses, training, product launch
announcements and human resource communications as well as traditional live
production and presentation image magnification applications for events such as
seminars and guest speakers. The PVTV PRO system is also targeted for similar
government applications. The PVTV Learning system, which is packaged with a
comprehensive curriculum on CD-ROM, targets broadcast and communication schools
and colleges that teach video production. In addition, PVTV Learning can be used
to produce content for distance learning, video streaming e-learning, campus
news and general production applications. The PVTV PRO and Learning packages
have list prices ranging from approximately $150,000 to $180,000.
Although the Company has focused almost all of its sales and marketing efforts
on PVTV NEWS systems for the US broadcast markets, recent demonstration and
awareness efforts at corporate, government and education trade shows have
already started to produce sales opportunities into these vertical markets.
The Company's patented CameraMan automated video camera control systems utilize
a computerized base which pans and tilts simultaneously to achieve fluid motion,
into which is integrated a three-chip (3-CCD) imaging broadcast quality camera.
CameraMan also includes a proprietary and patented automatic tracking capability
as an option. Additional peripheral devices are available to control the
automatic tracking functions and to remotely control base unit and camera
functions. CameraMan camera products are offered in a variety of
application-specific packages.
The Company's 3-CCD product line is available in both an analog and a digital
version. The three-chip camera systems, in addition to being available in
application-specific packages for distance education and corporate use, are
packaged with the Company's PVTV systems. Digital camera systems are available
in standard 4:3 aspect ratios and switchable 4:3/16:9 formats in order to take
advantage of the eventual market transition from standard NTSC 4:3 television to
16:9 digital format television.
9
The Company's analog 3-CCD camera control systems have list prices ranging from
approximately $20,000 to $24,000. The Company's digital 3-CCD camera systems
have list prices ranging from approximately $27,000 to $41,000.
The Company has a product currently in development and ready for beta testing
called the PVTV WebSTATION(TM) for News, which is a patent-pending system
designed to leverage the automation capabilities of PVTV NEWS for Internet live
and on-demand distribution. The Company is evaluating various business models
for this product and believes it will further enhance the broadcaster's
relationship and investment with the Company.
Wireless Division
- -----------------
The Company's highly integrated WLAN D2D-based RF transceiver IC's for the 2.4
GHz IEEE 802.11b (PV-1000) and 802.11g and 802.11a compatible (PV-2000) standard
are currently available for volume production. The Company is offering its
PV-1000 and PV-2000 IC's for sale at list prices ranging from approximately $7
to $12. Actual sales prices will likely be dependent upon negotiated agreements
which will take into consideration factors including volume and market
conditions, among others.
The D2D architecture will allow manufacturers to reduce component costs, reduce
power consumption and simplify design and manufacturing of WLAN products when
compared with the Super-heterodyne RF front-ends currently employed for
enterprise, consumer and other vertical markets. The Company believes that its
WLAN IC's meet or exceed the performance of the high performance
Super-heterodyne RF front-ends that are currently employed in the more
expensive, better quality WLAN 802.11b and 802.11g products. The Company also
believes that its WLAN RF IC's have achieved a simultaneous blend of high
performance, reasonable power consumption, low cost, and small size that are
unique when compared with other known Direct Conversion WLAN RF IC's where one
or more of those attributes are compromised.
The Company began demonstrations of its RF IC's in the second half of 2002 and
has recently completed its first 802.11b reference design. The Company further
believes that it will complete its first reference designs for 802.11g and
potentially 802.11a in the second half of 2003; however, this will be dependent
on the availability of baseband/MAC IC's and favorable working relationships
with companies that produce such IC products. The Company is also undertaking
the development of its own baseband/MAC products that will be complimentary to
its WLAN RF IC's. The Company believes that the first of these products will be
available in late 2003 or early 2004.
MARKETING AND SALES
- -------------------
Video Division
- --------------
The Video Division is primarily focused on market penetration of the broadcast
television industry with its PVTV News products. To establish the PVTV
automation system platform as a live production industry standard, the Company
believes that acceptance by broadcasters is critical since their most demanding
production operation is their news operation. The Company believes other
vertical markets such as corporate, government, religious and education will
likely follow the lead of the broadcast community. This has been demonstrated
with recent sales to several colleges and universities with minimal marketing
effort by the Company to realize these sales.
10
The Company has built a comprehensive team that has successfully transitioned
broadcasters from a decades-old traditional process to the radically streamlined
PVTV technology-based process. Currently, the Company sells the majority of its
PVTV automated production systems in a consultative system selling process with
its own national sales organization. The sales force is distributed in four
geographic territories. In addition to system sales, the Company provides
ongoing training and annual service and support contracts for its PVTV systems.
Primarily internal trainers, project managers and support personnel provide
these services.
In addition to its own sales force, the Company's Video Division has a network
of audiovisual product dealers, telecommunication dealers and systems
integrators. This dealer network is responsible for stand-alone three-chip
CameraMan video camera control system sales. Select dealers are also authorized
to market and sell the Company's lower-end PVTV solutions to corporate and
education environments.
The Company's revenue percentages by distribution channel are as follows:
DISTRIBUTION CHANNEL 2002 2001 2000
- --------------------------------------------------------------------------------
Direct 72% 29% 40%
National Resellers 23% 52% 38%
International Resellers 4% 10% 6%
OEM Customers 1% 9% 16%
In 2002, three broadcast customers, Lin Television Corporation, McGraw-Hill
Broadcasting, Inc. and Cablevision, accounted for an aggregate of approximately
46% of the Company's total revenues. No single customer accounted for more than
10% of the Company's revenues in 2001. VTEL and Ackerley accounted for
approximately 16% and 30%, respectively of the Company's revenues in 2000.
Wireless Division
- -----------------
The Company began the initial commercialization of its wireless technology by
focusing its efforts on license arrangements with third parties. This resulted
in a licensing arrangement with Symbol Technologies, Inc. for WLAN in 1999. The
Company subsequently refocused its efforts to the production and marketing of
its own IC's to product manufacturers in targeted markets.
In the WLAN marketplace the Company currently plans to sell IC's directly to
Original Equipment Manufacturers ("OEM's") and Original Design Manufacturers
("ODM's") who manufacture and sell products including WLAN Network Interface
Cards ("NIC's"), Access Points ("AP's"), and various modules for applications
where WLAN functionality is included as a standard embedded feature within
certain products.
The Company increased its sales staff in late 2002 and early 2003 in order to
launch its sales efforts and build relationships with OEM's and ODM's that the
Company is targeting for sales of its WLAN IC's. The Company anticipates
additional increases in staffing in 2003 to support the creation and maintenance
of reference designs and relationships required for complete product
implementations for OEM's and ODM's.
The Company may also pursue strategic relationships with other companies that
produce complimentary IC's such as baseband processors/MAC's and power
amplifiers.
11
COMPETITION
- -----------
Video Division
- --------------
Due to the comprehensive functionality of ParkerVision's PVTV solution, the
Company does not compete directly with any similar solution. However, the
Company vies for the capital budget dollars used to fund a combination of
offerings from a range of vendors. Competition within the broadcast operations
market is generally based on product performance, breadth of product line,
service and support, market presence and price. From this perspective, the
Company's principal competitors include Chyron Corporation, Harris Broadcast,
Pinnacle Systems, Leitch Technology Corporation, SeaChange Corporation, Sony
Corporation, and Thomson/Grass Valley, among others. These competitors offer
video switchers and various other products for production and control room
environments.
A traditional audio/video production environment involves the coordination of
multiple operators who independently operate various pieces of equipment in
parallel to achieve video, audio, teleprompter, machine control for VTRs, video
and audio servers, character generators, still stores and other ancillary
production equipment and camera control functions. The Company is not aware of
any competitors who currently offer a system solution comparable to PVTV that
integrates all of these discrete components and equipment through a single
interface and provides the technology to allow these functions to operate
automatically and in parallel in "event" driven control. In addition, the
Company is not aware of any competitors who currently offer a level of
automation with integration to news automation systems with "event" driven
control with the resolution necessary to produce a dynamic newscast or other
show that requires a system to address non-scripted changes in real time.
The Company believes the most compelling reason for a broadcaster to purchase
PVTV is operational efficiencies and enhanced capabilities. Poor business
conditions of the television broadcasting industry in recent years and the
resulting lack of advertising revenue have forced many broadcasters to seek
long-term solutions that address quick returns on capital equipment investments.
The Company believes that PVTV will allow the broadcaster to lower operational
costs while maintaining and/or enhancing their quality of presentation. Because
of PVTV's operational efficiencies, broadcasters can operate more efficiently
producing their current newscasts in addition to producing more newscasts for
more revenue opportunities. In addition, operating more efficiently using less
personnel in production has allowed broadcasters to increase field reporters
thus becoming more competitive. The Company also expects to successfully compete
in the marketplace based on PVTV's patented technology and technical services
expertise.
Although unique in the industry as the only comprehensive totally integrated
3-CCD camera system, the Company's 3-CCD CameraMan product will likely face
pricing challenges in the price sensitive videoconferencing and distance
learning applications in the future. Applied systems exist whereby integrators
can assemble pan/tilt robotic heads, servo-lens controllers, cameras, camera
control units (CCUs), lenses and multi-camera controllers to achieve similar
results at lower price points. The Company believes it can compete with this
approach by selling a totally integrated solution produced and supported by a
single source supplier. As bandwidth for the aforementioned applications
increases, the Company believes that the demand for 3-CCD quality images will
also increase. The Company's digital 3-CCD CameraMan camera system offering is
typically packaged with PVTV systems targeted at broadcasters, corporate,
government and education vertical markets. As a packaged solution, the product
competes successfully except in larger broadcast markets that use high-end
robotic systems manufactured by other vendors such as Vinten and Rademac. In
these applications, PVTV integrates with these competitive camera system
products to address customer
12
requirements for PVTV.
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 competition, which is expected to
increase, and also withstand 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 patents-issued and patents-pending D2D technology. The Company
believes its D2D technology will provide one or more of the desirable attributes
of lower cost, smaller size, lower power consumption and better performance than
other competing technologies and approaches. The Company believes that the
competing approaches are either traditional Super-Heterodyne multi-step up and
down-conversion based transceivers, direct conversion or hybrid direct
conversion transceivers that are fundamentally based on more traditional devices
to achieve the Direct Conversion function.
It is possible that the industry will accept compromises in performance such as
higher power consumption, lower sensitivity and dynamic range, less adjacent
channel rejection, poor linearity, or all of the aforementioned. However, the
Company believes that its D2D technology will enable the creation of RF
front-ends that will meet, or in certain instances exceed, the performance
figures of merit of the Super-heterodyne RF front-ends that such implementations
would be replacing. The Company also believes that it will distinguish itself
from other direct conversion offerings by delivering high levels of RF front-end
circuit integration without the compromises that it believes will be found in
offerings based on the use of traditional heterodyne mixers or hybrid approaches
to direct conversion. It is also possible that the industry will develop
advancements to the traditional approaches which will enable fewer compromises
in performance.
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 have developed and will introduce their own direct
conversion transceiver IC's, and that other developers of direct conversion IC's
will emerge in the future as 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.
In late 2002 and early 2003 the Company became aware of several WLAN RF
transceiver offerings that the Company believes are based on the use of
traditional mixers in order to achieve a form of Direct Conversion. These
offerings include those from Philips Semiconductor, Broadcom, Maxim, and
Intersil. From the Company's analysis of these offerings, it appears that these
transceivers deliver compromises in what the Company would consider to be
important attributes including power consumption, adjacent channel rejection,
AGC settling time, linearity, transmit power output, operational dynamic range,
high signal receiver operation, receiver sensitivity, DC offset settling time,
required RF shields, and voltage power supply requirements, among others.
Although the Company cannot be certain that it has achieved better performance
attributes than those
13
recently introduced competitive offerings, this is the Company's belief based on
samplings of field products, attained data sheets, and discussions with
prospective customers. It is also not clear if the Company's advantages will be
viewed by prospective customers as more attractive than other possible offerings
that some of these competitors may offer such as complete chip-sets including
baseband processors/MAC's, power amplifiers, and other services or products that
the Company may not be aware of.
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 or superior to the benefits of the Company's
technology.
PRODUCTION AND SUPPLY
- ---------------------
Video Division
- --------------
The Company engages in assembly operations of its PVTV production systems and
its automated video camera control systems at its facility in Jacksonville,
Florida. The Company's operations involve the inspection of each component, the
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
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 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 Other Equipment Manufacturer ("OEM") 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.
Four suppliers of significant components of the Company's PVTV system accounted
for an aggregate of 49% of the Company's component purchases for the year ended
December 31, 2002. For the year ended December 31, 2001, two suppliers accounted
for an aggregate of 21% of the Company's component purchases. For the year ended
December 31, 2000, one supplier accounted for approximately 20% of the Company's
component purchases. These suppliers represent single-source suppliers of camera
and other components utilized primarily in the Company's PVTV products. No other
supplier accounted for more than 10% of the Company's component purchases in
2002, 2001, or 2000. The Company had no outstanding purchase commitments at
December 31, 2002.
The Company's sales cycle for its camera and production products can vary from
one to eighteen months. The period from execution of a customer's purchase order
to delivery of a CameraMan camera system is typically one to six weeks. The
period from execution of a customer's purchase contract to delivery of a PVTV
system ranges from one to three months depending on supply lead times, customer
site readiness, and customer installation schedules. The Company attempts to
forecast orders and to purchase long lead-time components in advance of receipt
of purchase orders so it can provide deliveries of completed systems within its
standard delivery period.
14
At December 31, 2002, the Company maintained an inventory of standard electronic
and other system components of $2,010,578. Substantially all of the Company's
systems are delivered to customers by common carrier.
For camera products and related accessories, the Company warrants against
defects in workmanship and materials for approximately one year. For PVTV
systems, the Company warrants against software bugs and defects in workmanship
and material for a period of ninety days from commissioning of a site. 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. The Company also offers, at an additional fee,
extended service and support contacts on its PVTV automated production systems.
The revenue from all extended support contracts is recognized ratably over the
service period.
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 TI and possibly other foundries to satisfy
performance and quality specifications and dedicate sufficient production
capacity for IC's within scheduled delivery times. Additionally, there can be no
assurance that the foundry process specifications will remain constant and the
Company could be required to re-design its circuits without notice from the
semiconductor provider. Failure or delay by the foundries in supplying IC's to
the Company, failure or delay by the foundries in meeting the performance or
quality specifications, or changes by the foundry in its semiconductor process
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.
The Company does not currently maintain inventories of its IC products. It is
anticipated that the lead time from receipt of a customer order to delivery of
packaged IC's is approximately three to four months; however this lead time
could vary significantly based on the available foundry capacity.
PATENTS AND TRADEMARKS
- ----------------------
The Company's patent portfolio currently consists of the following issued and
pending patents:
Video Wireless Total
----- -------- -----
U.S. Utility patents 17 8 25
Foreign Utility patents 8 8 16
U.S. Utility patent applications 12 48 60
Foreign Utility patent applications 7 48 55
Patent Cooperation Treaty applications 5 2 7
U.S. provisional patent applications 7 3 10
German Registered Utility Models - 2 2
The Company's video patents relate to certain tracking functions and methods for
controlling the field of view in an automatic tracking camera system and other
applications relating to its automated video production systems. The Company's
wireless patents pertain primarily to the Company's
15
wireless D2D technology. The Company estimates the economic lives of its patents
range from five to twenty years.
The Company promotes its camera, video production and wireless technologies
under the United States registered trademarks ParkerVision, CameraMan, 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
PVTV and related trademarks based thereon.
The Company currently holds various foreign trademark and service mark
registrations for the marks D2D, DIRECT2DATA, and DIRECT CONVERSION WITHOUT THE
COMPROMISES. The Company further promotes its products and services under other
marks.
GOVERNMENT REGULATION
- ---------------------
The Company utilizes wireless communications in its CameraMan camera and PVTV
systems and in its D2D 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 countries
that it sells products. To date, the Company has not encountered any significant
inability or limitations on obtaining required material licenses. 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 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, 2002, 2001 and 2000, the Company expended
approximately $13,939,000, $12,796,000 and $12,601,000, 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 D2D
technology and IC's for the Wireless Division and the PVTV product line in the
Video Division.
EMPLOYEES
- ---------
As of December 31, 2002, the Company had 123 full-time employees and 2 part-time
employees, of which 10 are employed in manufacturing, 72 in engineering research
and development, 15 in sales and marketing, 12 in product training and support,
and 16 in finance and administration. None of the Company's employees are
represented by a labor union.
16
Effective December 21, 2002, the Company entered into an arrangement with ADP
TotalSource ("ADP") for the outsourcing of its human resource functions. ADP, a
division of Automatic Data Processing, is a Professional Employer Organization
("PEO") which co-employs over 70,000 employees worldwide. As a co-employer, ADP
assumes many of the legal and administrative responsibilities of human resources
management, health benefits, workers' compensation, payroll, payroll tax
compliance and unemployment insurance. The Company considers its employee
relations satisfactory.
ITEM 2. PROPERTIES
The Company's headquarters 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 and Chief Executive
Officer of the Company, and Barbara Parker, a related party. The lease is on a
triple net basis and currently provides for a monthly base rental payment of
approximately $23,300, or approximately $8.50 per square foot annually through
February 2007, with an option for renewal. The Company's management conducted a
study in 2001 and concluded that the rate charged under this lease agreement is
competitive with comparable properties. The Company believes that its
manufacturing facility is adequate for its current and reasonably foreseeable
future needs. The Company believes that the 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 lease provides for a monthly base rental payment of
approximately $9,600 through May 2004.
The Company also leases approximately 17,400 square feet of office space in Lake
Mary, Florida for the Wireless Division's Orlando design center. The lease term
commenced in September 2000 and provides for a monthly base rental payment of
approximately $30,250 through December 2005.
The Company leases approximately 5,600 square feet of office space in
Pleasanton, California. The lease term commenced in March 2000 and provides for
a monthly base rental payment of approximately $13,700 through March 2005. The
Company ceased its operations in Pleasanton at the end of 2001 with expectations
of subletting the property for the remaining lease term. Due to the declining
real estate market in the Pleasanton area, the Company has been unable to sublet
the property. During the year ended December 31, 2002, the remaining estimated
future lease obligation for the Pleasanton facility was charged to general and
administrative expense.
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 base rental payment of approximately $1,700 per
month through May 2005.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company, based upon the advice of outside legal
counsel, believes that the final disposition of such matters will not have a
material adverse effect on its financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
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.
2002 2001 2000
------------------ ------------------ ------------------
High Low High Low High Low
------- ------- ------- ------- ------- -------
1st Quarter $21.790 $17.400 $40.563 $22.375 $36.500 $25.250
2nd Quarter 24.850 15.520 29.550 21.328 52.875 21.000
3rd Quarter 18.950 11.160 25.690 13.180 52.000 36.250
4th Quarter 13.990 6.669 22.690 16.570 56.438 36.500
HOLDERS
- -------
As of March 12, 2003, there were 118 holders of record. The Company believes
there are approximately 1,640 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 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
Consideration received and Exemption or convertible
description of underwriting from security, terms
Date of Number or other discounts to market registration of exercise or
sale Title of security sold price afforded to purchasers claimed conversion
- --------------------------------------------------------------------------------------------------------------
12/13/02 Options to 124,000 Options granted - no 4(2) Exercisable for five
purchase common consideration received by years from the date
stock granted to Company until exercise of grant, options
employees pursuant vest immediately at
to the 1993 and an exercise price of
2000 Plans $7.25 per share
10/03/02 Options to 91,000 Options granted - no 4(2) Exercisable for five
to 12/9/02 purchase common consideration received by years from the date
stock granted to Company until exercise the options vest,
employees pursuant options vest over
to the 1993 and five years at an
2000 Plans exercise price
ranging from $7.55
to $13.05 per share
18
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 consolidated financial statements of the Company. 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".
For the years ended December 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues, net $ 11,912 $ 9,315 $ 15,965 $ 10,549 $ 9,892
Gross margin 4,703 3,262 7,474 3,609 3,461
Operating expenses 22,880 21,613 22,445 14,647 9,644
Interest and other income 905 1,741 1,949 1,297 1,477
Net loss (17,272) (16,610) (13,022) (9,741) (4,706)
Basic and diluted net loss per
common share (1.24) (1.20) (1.03) (0.83) (0.41)
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 37,846 $ 54,218 $ 63,608 $ 32,771 $ 40,250
Long term liabilities 101 74 140 30 18
Shareholders' equity 34,047 50,547 60,020 30,136 38,982
Working capital 19,093 36,235 45,600 22,733 25,290
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
19
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.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of consolidated financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its significant
estimates, which include allowance for bad debts, inventory reserves, intangible
assets, income taxes, warranty obligations, and contingencies and litigation.
The Company bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The Company believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:
o The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or
determinable and collectibility is probable. For product sales, these
criteria are generally met at the time product is shipped. At the time
revenue is recognized, the Company provides for the estimated cost of
product warranties. For training and other service revenue, the
Company recognizes revenue as the services are complete and the
Company has no significant remaining obligation to the customer.
Revenue from multi-element support contracts is recognized ratably
over the life of the agreement, generally one year.
o The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. If the financial condition of the Company's customers were
to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
o The Company provides for the estimated cost of product warranties at
the time revenue is recognized. The Company's warranty obligation is
affected by product failure rates and material usage and service
delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ
from the Company's estimates, a revision to the estimated warranty
liability would be required.
o The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional
inventory write-downs may be required.
o The Company estimates the economic lives of its long-lived assets,
including patents and other intangibles and evaluates the need for
impairment of these assets based on the difference between the cost of
the asset and the sum of estimated future cash flows expected
20
to result from the use of the asset. If actual future cash flows are
less favorable than those projected by management, an impairment
charge may be required.
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 2003. 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 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 or that the Company has adequate capital
to complete its products or gain market acceptance before requiring additional
capital.
RESULTS OF OPERATIONS FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2002, 2001
- --------------------------------------------------------------------------------
AND 2000
- --------
Revenues
- --------
Revenues for the years ended December 31, 2002, 2001 and 2000 were $11,911,913,
$9,315,445 and $15,964,587, respectively. The Company's revenues to date have
been generated entirely by its Video Division. Revenues generated by the
Company's major product lines, including service and support related to those
products, as a percentage of total revenues for the years ended December 31,
2002, 2001 and 2000 are as follows:
2002 2001 2000
------ ------ ------
PVTV systems 64% 24% 36%
CameraMan systems 26% 66% 59%
Support and other services 10% 10% 5%
The number of PVTV and stand-alone CameraMan systems sold and the average
selling price per system for the years ended December 31, 2002, 2001 and 2000
were as follows:
PVTV Systems Camera Systems
---------------------------- ------------------------------
# Avg. Selling # Avg. Selling
Systems Price Per Systems Price Per
Sold System Sold System
------------- -------------- --------------- --------------
2002 21 $363,000 361 $8,600
2001 9 $248,000 820 $7,500
2000 15 $398,000 1,431 $6,600
The $2,596,468 increase in revenues from 2001 to 2002 was due to a significant
increase in PVTV system sales and related services, offset by an approximate 50%
decline in revenues from camera system sales. The Company believes the increase
in PVTV system revenue is due to growing market acceptance of the PVTV automated
production system among broadcasters. In addition, the average selling price per
PVTV system increased from approximately $248,000 in 2001 to $363,000 in 2002
due to the sale of higher end systems in larger broadcast markets.
21
The decline in camera revenues from 2001 to 2002 was anticipated with the
Company's announcement of the discontinuation of its single-chip camera line
early in 2002. The Company's decision to discontinue this product line resulted
from supply issues, declining demand and an increased focus on development and
marketing of the PVTV systems. Although the overall camera unit sales declined,
the average selling price per system increased from $7,500 to $8,600 per system.
This increase is due to an increase in the percentage of three-chip unit sales
from approximately 13% of total camera sales in 2001 to approximately 24% in
2002. The Company plans to continue to market and sell its three-chip camera
products in broadcast, education and corporate environments.
The $6,649,142 decrease in revenues from 2000 to 2001 was due to a decline in
sales of both major product lines. The decline in camera sales was primarily due
to reduced sales to Forgent Corporation, formerly Vtel Corporation ("VTEL"). The
Company believes this resulted from the restructuring of VTEL during 2001 which
ended with the spin-off of VTEL's product division in March 2002. In addition to
the decline in VTEL sales, the Company's single-chip camera sales declined
overall. The Company believes this was caused by increased pricing pressure from
competing technologies as well as the Company's decision to focus its sales and
marketing efforts on its PVTV product line.
The decrease in revenue from PVTV products was due to a decline in group sales
revenue in 2001 in comparison with 2000, as well as a decrease in the average
selling price per system. In 2000, the Company recognized revenue on nine
systems sold to The Ackerley Group ("Ackerley") which accounted for
approximately 30% of the Company's total revenue in 2000. The Company received
purchase contracts from two broadcast ownership groups in 2001 for a total of 10
stations, however, because of customer installation schedules, only three of
these systems were delivered in 2001. The remaining systems were delivered in
2002. The decrease in the average selling price per system from 2000 to 2001 is
due to increased sales of the lower-end PVTV systems, and decreased sales of
dual system packages which have a higher selling price per installation.
To date, the Company has not generated revenues from its Wireless Division.
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 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, 2002, 2001 and 2000, gross margins as a
percentage of sales were 39%, 35% and 47% respectively.
The increase in margin from 2001 to 2002 was due to the shift in revenues from
cameras to PVTV systems which have a higher gross margin per system sale. This
increase was somewhat offset by decreases in margins resulting from the
obsolescence of certain parts in connection with discontinuation of the
single-chip camera system in 2002.
The decrease in margin from 2000 to 2001 is due to the decreased revenues from
PVTV systems which have a higher gross margin percentage per system sale than
the camera sales, an overall decrease in the average selling price of PVTV
systems and increased absorption of fixed overhead
22
and indirect labor cost due to lower production volumes.
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. 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 2002 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
$1,143,000 or 9% from 2001 to 2002, and $195,000 or 2% from 2000 to 2001.
Research and development expenses as a percentage of revenues were 117%, 137%,
and 79% in 2002, 2001 and 2000, respectively.
The increase in research and development expenses from 2001 to 2002 was due to
increased wireless chip development expenses and increased overhead from the
expansion of the Orlando wireless facility. The Company closed its California
wireless development facility at the end of 2001, and transferred those
development efforts to the Orlando facility.
The increase in research and development expenses from 2000 to 2001 was due to
increased personnel and additional office space for the Wireless Division as
well as increased prototype expenses for wireless chip development in 2001.
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 2003.
Marketing and Selling Expenses
- ------------------------------
Marketing and selling expenses decreased by approximately $268,000 or 7% from
2001 to 2002, and by $1,044,000 or 21% from 2000 to 2001. Marketing and selling
expenses as a percentage of revenues were 30%, 41% and 31% for the years ended
December 31, 2002, 2001 and 2000, respectively.
The decrease in marketing and selling expenses from 2001 to 2002 is primarily
due to sales and marketing personnel reductions in late 2001, decreases in video
trade show expenses and decreases in overhead due to closing of the California
facility late in 2001. These decreases were somewhat offset by increases in
video sales commissions, travel costs and personnel costs related to additional
staffing in the Wireless Division in the fourth quarter of 2002.
The decreases in marketing and selling expenses from 2000 to 2001 were primarily
due to decreased sales commissions as a result of the decline in revenue, and a
reduction in personnel, advertising and promotional costs as a result of
restructuring and cost cutting measures that took place in 2000 and 2001.
23
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
2003 primarily to support the Company's commercialization of its D2D products.
General and Administrative Expenses
- -----------------------------------
The Company's general and administrative expenses increased by $348,000 from
2001 to 2002 and by $12,000 from 2000 to 2001. General and administrative
expenses consist primarily of executive and administrative personnel costs,
insurance costs and costs incurred for outside professional services.
The increase in general and administrative expenses from 2001 to 2002 is largely
due to a reserve of approximately $357,000 representing the estimated remaining
lease commitment for the California wireless facility. In addition, the Company
has incurred increases in insurance costs offset somewhat by decreases in
outside professional fees.
The increase in general and administrative expenses from 2000 to 2001 is due to
increases in insurance costs, professional fees and executive travel costs,
offset largely by decreases in personnel costs.
Other Expense
- -------------
Other expense consists of losses on the disposal of fixed assets no longer in
service, primarily obsolete computer equipment.
Interest and Other Income
- -------------------------
Interest and other income decreased by approximately $836,000 from 2001 to 2002
and $207,000 from 2000 to 2001. Interest and other income represent interest
earned on the Company's investment of the proceeds from sales of its equity
securities and net gains on the sale and/or maturity of investments. The
decrease in interest income from 2001 to 2002 and 2000 to 2001 is due to
declining interest rates and the use of funds to support operations, offset
somewhat by net gains recognized on the sale of investments.
Loss and Loss per Share
- -----------------------
The Company's net loss increased from approximately $16,610,000, or $1.20 per
common share in 2001 to approximately $17,272,000, or $1.24 per share in 2002,
representing a net loss increase of approximately $662,000, or $.04 per common
share. This increase in net loss is primarily due to a $1.4 million increase in
gross margin, offset by a $1.3 million increase in operating expenses and a $0.8
million decrease in interest and other income. The increase in operating
expenses is attributable primarily to increased research and development and
general and administrative expenses.
The Company's net loss increased from approximately $13,022,000, or $1.03 per
share in 2000 to approximately $16,610,000, or $1.20 per common share in 2001,
representing a net loss increase of approximately $3,588,000 or $0.17 per common
share. The increase in net loss is primarily due to a $4.2 million decrease in
gross margin, somewhat offset by a $0.9 million decrease in operating expenses
attributable primarily to reduced sales and marketing expenses.
24
Backlog
- -------
As of December 31, 2002, 2001 and 2000, the Company had a camera backlog of
approximately $19,000, $414,000, and $281,000, respectively. Camera backlog
consists of camera system orders received from customers, which generally have a
specified delivery schedule within one to six weeks of receipt. In addition, at
December 31, 2002, 2001, and 2000, the Company had a backlog of PVTV sales and
services of approximately $700,000, $5,200,000, and $350,000, respectively. The
significant increase in PVTV backlog at the end of 2001 is due to the receipt of
two purchase contracts from broadcast ownership groups for multiple site sales ,
the majority of which were delivered in 2002.
Liquidity and Capital Resources
- -------------------------------
At December 31, 2002, the Company had working capital of approximately
$19,093,000, including approximately $14,955,000 in cash, cash equivalents and
short-term investments. The Company used cash for operating activities of
approximately $14,187,000, $10,801,000 and $10,297,000, for the years ended
December 31, 2002, 2001 and 2000, respectively. The increase in cash used for
operating activities in 2002 is approximately $3,386,000. This increase is
primarily due to the increases in accounts receivable and prepaid expenses. The
increase in cash used for operating activities in 2001 is primarily the result
of increases in the net losses generated by the Company due to decreased
revenues offset somewhat by reductions in accounts receivable.
The Company generated (used) cash from investing activities of approximately
$10,210,000, $(22,492,000), and $2,587,000 for the years ended December 31,
2002, 2001 and 2000, respectively. This generation (use) of cash is primarily
from the maturity, sale and purchase of investments in government-backed
securities, in addition to the payment for intangible assets and capital
expenditures.
The Company incurred approximately $1,556,000, $2,252,000, and $2,298,000, in
connection with patent costs primarily related to the Company's wireless
technology in 2002, 2001, and 2000, respectively. The Company incurred
approximately $1,319,000, $1,435,000, and $5,116,000, for capital expenditures
in 2002, 2001, and 2000, 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, the
purchase of design software for wireless chip development, and the acquisition
of a fractional share in an aircraft. At December 31, 2002, the Company was not
subject to any significant commitments to make additional capital expenditures.
The Company generated cash from financing activities of approximately $501,000,
$6,485,000 and $36,954,000, for the years ended December 31, 2002, 2001 and
2000, respectively. The cash generated from financing activities represents
proceeds from the exercise of stock options and warrants as well as proceeds
from the issuance of common stock to Texas Instruments in 2001 and Tyco
International Ltd. and Leucadia National in 2000 in transactions exempt from
registration under the Securities Act of 1933.
The Company's future business plans call for continued investment in research
and development and sales and marketing costs related to its video and wireless
technologies. Although management may expect to generate revenues in 2003 from
initial sales of its wireless products, it does not anticipate that the
potential revenues together with the video related revenues will be sufficient
to offset the expenses from the continued investment in its video and wireless
product development and sales and
25
marketing activities. Therefore, management expects operating losses and
negative cash flows to continue in 2003 and possibly beyond. The Company intends
to utilize its working capital to fund its future business plans. The Company's
principal source of liquidity at December 31, 2002 consisted of approximately
$15.0 million in cash, cash equivalents and short-term investments.
On March 27, 2003, the Company received $5,078,200 from the sale of an aggregate
of 1,154,437 shares of its common stock in private placement transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended. These shares
constitute approximately 7.6% of the Company's outstanding common stock on an
after-issued basis. Leucadia National Corporation and another third party
purchased 659,387 shares of common stock at a price of $3.91 per share. The
Parker family, including CEO Jeffrey Parker, purchased 495,050 shares of common
stock at the market price of $5.05 per share.
The Company believes that its current capital resources together with the
proceeds of the March 2003 equity financing will be sufficient to support the
Company's liquidity requirements at least through fiscal 2003. The long-term
continuation of the Company's business plans is dependent upon generation of
sufficient revenues from its products to offset expenses. In the event that the
Company does not generate sufficient revenues, it will be required to obtain
additional funding through public or private financing and/or reduce certain
discretionary spending. Management believes certain operating costs could be
reduced if working capital decreases significantly and additional funding is not
available. In addition, the Company currently has no outstanding long-term debt
obligations. Failure to generate sufficient revenues, raise additional capital
and/or reduce certain discretionary spending could have a material adverse
effect on the Company's ability to achieve its intended long-term business
objectives.
The Company's contractual obligations and commercial commitments at December 31,
2002 were as follows:
Payments due by period
------------------------------------------------------------------------
1 year 2-3 4 - 5 After 5
Total or less years years years
--------------- ------------- -------------- -------------- ----------
Contractual Obligations:
Operating leases $2,770,000 $943,000 $1,501,000 $326,000 $0
Unconditional purchase
obligations 0 0 0 0 0
Commercial Commitments 0 0 0 0 0
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
26
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 28
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - December 31, 2002 and 2001 29-30
Consolidated Statements of Operations - for the years
ended December 31, 2002, 2001 and 2000 31
Consolidated Statements of Shareholders' Equity - for
the years ended December 31, 2002, 2001 and 2000 32-33
Consolidated Statements of Cash Flows - for the years
ended December 31, 2002, 2001 and 2000 34
Notes to Consolidated Financial Statements - December 31,
2002, 2001 and 2000 35-51
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 59
Schedules other than those listed have been omitted
since they are either not required, not applicable or
the information is otherwise included.
27
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, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the consolidated 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 audit 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.
As more fully discussed in Note 2, the Company has incurred significant net
losses and negative cash flows since inception and the continuation of the
Company's business plan beyond 2003 is dependent upon obtaining additional
funding. Management's plans in regard to this matter are also described in Note
2 and 19.
/s/ PricewaterhouseCoopers LLP
--------------------------
PricewaterhouseCoopers LLP
Jacksonville, Florida
March 27, 2003
28
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,087,033 $ 4,563,535
Short-term investments available for sale 13,867,763 26,908,362
Accounts receivable, net of allowance for doubtful
accounts of $109,584 and $84,103 at December
31, 2002 and 2001, respectively 2,158,577 946,635
Inventories, net 3,090,884 4,319,539
Prepaid expenses and other 2,587,376 3,092,820
------------ ------------
Total current assets 22,791,633 39,830,891
PROPERTY AND EQUIPMENT, net 6,183,534 7,003,465
OTHER ASSETS, net 8,870,803 7,383,169
------------ ------------
Total assets $ 37,845,970 $ 54,217,525
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
29
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 759,242 $ 938,488
Accrued expenses:
Salaries and wages 951,430 1,184,780
Warranty reserves 248,230 212,107
Lease obligation 357,417 0
Professional fees 271,225 196,142
Other accrued expenses 107,598 78,597
Deferred revenue 1,003,466 985,612
------------ ------------
Total current liabilities 3,698,608 3,595,726
DEFERRED INCOME TAXES 100,773 74,469
------------ ------------
Total liabilities 3,799,381 3,670,195
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 11 and 15)
SHAREHOLDERS' EQUITY:
Convertible preferred stock, $1 par value, 5,000,000
shares authorized, 13,678 and 27,356 shares issued
and outstanding at December 31, 2002 and 2001,
respectively 13,678 27,356
Common stock, $.01 par value, 100,000,000 shares
authorized, 13,989,329 and 13,913,806 shares
issued and outstanding at December 31, 2002 and
2001, respectively 139,893 139,138
Warrants outstanding 16,807,505 16,807,505
Additional paid-in capital 90,428,998 89,804,504
Accumulated other comprehensive income 310,869 151,359
Accumulated deficit (73,654,354) (56,382,532)
------------ ------------
Total shareholders' equity 34,046,589 50,547,330
------------ ------------
Total liabilities and shareholders' equity $ 37,845,970 $ 54,217,525
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
30
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000
------------ ------------ ------------
Product revenue $ 10,733,769 $ 8,340,528 $ 15,161,552
Support and other services revenue 1,178,144 974,917 803,035
------------ ------------ ------------
Net revenues 11,911,913 9,315,445 15,964,587
------------ ------------ ------------
Cost of goods sold - products 6,031,027 5,005,121 7,164,708
Cost of goods sold - support and other services 1,178,258 1,048,683 1,325,169
------------ ------------ ------------
Total cost of goods sold 7,209,285 6,053,804 8,489,877
------------ ------------ ------------
Gross margin 4,702,628 3,261,641 7,474,710
------------ ------------ ------------
Research and development expenses 13,939,480 12,796,442 12,601,496
Marketing and selling expenses 3,568,208 3,835,724 4,879,626
General and administrative expenses 5,320,557 4,972,889 4,961,082
Other expense 51,643 8,241 2,889
------------ ------------ ------------
Total operating expenses, net 22,879,888 21,613,296 22,445,093
------------ ------------ ------------
Loss from operations (18,177,260) (18,351,655) (14,970,383)
Interest and other income 905,438 1,741,188 1,948,610
------------ ------------ ------------
Net loss $(17,271,822) $(16,610,467) $(13,021,773)
============ ============ ============
Basic and diluted net loss per common share $ (1.24) $ (1.20) $ (1.03)
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
31
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000
----------------------------------------------
CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR 27,356 114,019 0
Conversion of preferred stock to common stock (13,678) (86,663) 0
Issuance of preferred stock for purchase of STI assets 0 0 79,868
Issuance of preferred stock as employee compensation 0 0 34,151
----------------------------------------------
CONVERTIBLE PREFERRED SHARES - END OF YEAR 13,678 27,356 114,019
==============================================
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - BEGINNING OF
YEAR $ 27,356 $ 114,019 $ 0
Conversion of preferred stock to common stock (13,678) (86,663) 0
Issuance of preferred stock for purchase of STI assets 0 0 79,868
Issuance of preferred stock as employee compensation 0 0 34,151
----------------------------------------------
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - END OF YEAR $ 13,678 $ 27,356 $ 114,019
==============================================
COMMON SHARES - BEGINNING OF YEAR 13,913,806 13,445,675 11,790,048
Issuance of common stock upon exercise of options and
warrants 52,600 294,700 504,565
Issuance of restricted common stock as employee
compensation 6,291 4,606 92,112
Issuance of common stock in private offering 0 83,451 1,058,950
Conversion of preferred stock to common stock 16,632 85,374 0
----------------------------------------------
COMMON SHARES - END OF YEAR 13,989,329 13,913,806 13,445,675
==============================================
PAR VALUE OF COMMON STOCK - BEGINNING OF YEAR $ 139,138 $ 134,457 $ 117,900
Issuance of common stock upon exercise of options and
warrants 526 2,947 5,046
Issuance of restricted common stock as employee
compensation 63 46 921
Issuance of common stock in private offering 0 835 10,590
Conversion of preferred stock to common stock 166 853 0
----------------------------------------------
PAR VALUE OF COMMON STOCK - END OF YEAR $ 139,893 $ 139,138 $ 134,457
==============================================
WARRANTS OUTSTANDING - BEGINNING OF YEAR $ 16,807,505 $ 15,659,035 $ 3,232,025
Exercise of warrants 0 (259,840) (738,385)
Issuance of warrants in connection with private offering 0 1,408,310 13,165,395
----------------------------------------------
WARRANTS OUTSTANDING - END OF YEAR $ 16,807,505 $ 16,807,505 $ 15,659,035
==============================================
The accompanying notes are an integral part of these consolidated financial
statements.
32
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000
----------------------------------------------
ADDITIONAL PAID-IN CAPITAL - BEGINNING OF YEAR $ 89,804,504 $ 83,937,839 $ 53,723,742
Issuance of common stock upon exercise of options and
warrants 500,059 4,256,465 7,723,866
Issuance of restricted common stock as employee
compensation 110,923 125,088 2,853,139
Issuance of common stock in private offering 0 1,075,989 16,787,015
Conversion of preferred stock to common stock 13,512 85,810 0
Issuance of preferred stock for purchase of STI assets 0 0 1,916,832
Issuance of preferred stock as employee compensation 0 0 819,624
Issuance of options for consulting services 0 323,313 0
Amortization of deferred compensation 0 0 113,621
----------------------------------------------
ADDITIONAL PAID-IN CAPITAL - END OF YEAR $ 90,428,998 $ 89,804,504 $ 83,937,839
==============================================
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - BEGINNING
OF YEAR $ 151,359 $ (52,880) $ (187,052)
Change in unrealized gain (loss) on investments 159,510 204,239 134,172
----------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - END OF
YEAR $ 310,869 $ 151,359 $ (52,880)
==============================================
ACCUMULATED DEFICIT - BEGINNING OF YEAR $(56,382,532) $(39,772,065) $(26,750,292)
Net loss (17,271,822) (16,610,467) (13,021,773)
----------------------------------------------
ACCUMULATED DEFICIT - END OF YEAR $(73,654,354) $(56,382,532) $(39,772,065)
==============================================
TOTAL SHAREHOLDERS' EQUITY - BEGINNING OF YEAR $ 50,547,330 $ 60,020,405 $ 30,136,323
Issuance of common stock upon exercise of options and
warrants 500,585 3,999,572 6,990,526
Issuance of restricted common stock as employee
compensation 110,986 125,134 2,854,060
Issuance of common stock and warrants in private offering 0 2,485,134 29,963,001
Issuance of preferred stock for purchase of STI assets 0 0 1,996,700
Issuance of preferred stock as employee compensation 0 0 853,775
Issuance of options for consulting services 0 323,313 0
Amortization of deferred compensation 0 0 113,621
Comprehensive loss (17,112,312) (16,406,228) (12,887,601)
----------------------------------------------
TOTAL SHAREHOLDERS' EQUITY - END OF YEAR $ 34,046,589 $ 50,547,330 $ 60,020,405
==============================================
The accompanying notes are an integral part of these consolidated financial
statements.
33
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,271,822) $(16,610,467) $(13,021,773)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and patent amortization 2,950,859 2,782,757 2,002,896
Amortization of premium (discounts) on investments 281,377 68,099 (282,512)
Provision for obsolete inventories 521,573 320,000 320,000
Stock compensation 1,275,394 1,647,090 1,299,101
Gain on sale of investments (158,482) (20,267) 0
Loss on sale of equipment 51,643 8,798 2,889
Changes in operating assets and liabilities:
Accounts receivable, net (1,211,942) 1,397,281 (1,467,284)
Inventories 707,082 (646,530) (390,093)
Prepaid and other assets (1,435,399) 104,199 (163,545)
Accounts payable and accrued expenses 85,028 145,438 1,256,055
Deferred revenue 17,854 2,568 147,056
------------ ------------ ------------
Total adjustments 3,084,987 5,809,433 2,724,563
------------ ------------ ------------
Net cash used in operating activities (14,186,835) (10,801,034) (10,297,210)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments available for sale (16,786,291) (25,252,137) 0
Proceeds from maturity/sale of investments 29,863,504 6,447,302 10,000,000
Purchase of property and equipment (1,318,947) (1,434,740) (5,115,619)
Proceeds from sale of equipment 7,660 0 0
Payment for patent costs (1,556,178) (2,252,466) (2,297,536)
------------ ------------ ------------
Net cash provided by (used in) investing activities 10,209,748 (22,492,041) 2,586,845
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 500,585 6,484,706 36,953,527
------------ ------------ ------------
Net cash provided by financing activities 500,585 6,484,706 36,953,527
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,476,502) (26,808,369) 29,243,162
CASH AND CASH EQUIVALENTS, beginning of year 4,563,535 31,371,904 2,128,742
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,087,033 $ 4,563,535 $ 31,371,904
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
34
PARKERVISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
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 Division and the Wireless Division.
2. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has made substantial investment in developing the technologies for
its products, the returns on which are dependent upon the generation and
realization of future revenues. The Company has incurred losses from operations
and negative cash flows in every year since inception and has utilized the
proceeds from the sale of its equity securities to fund operations. For the year
ended December 31, 2002, the Company incurred a net loss of approximately $17.3
million and negative cash flows from operations of approximately $14.2 million.
At December 31, 2002, the Company had an accumulated deficit of approximately
$73.6 million and working capital of approximately $19.1 million. Although
management expects to generate additional revenues in 2003 from initial sales of
its wireless products, it does not anticipate that these revenues will be
sufficient to offset the expenses from continued investment in its video and
wireless product development and marketing activities. Therefore, management
expects operating losses and negative cash flows to continue in 2003 and
possibly beyond. As more fully discussed in Note 19, the Company has obtained
equity financing that it believes, along with existing financial resources, will
allow for sufficient liquidity to fund operations through at least fiscal 2003.
The long-term continuation of the Company's business plans is dependent upon
generation of sufficient revenues from its products to offset expenses. In the
event that the Company does not generate sufficient revenues, it will be
required to obtain additional funding through public or private financing and/or
reduce certain discretionary spending. Management believes certain operating
costs could be reduced if working capital decreases significantly and additional
funding is not available. In addition, the Company currently has no outstanding
long-term debt obligations. Failure to generate sufficient revenues, raise
additional capital and/or reduce certain discretionary spending could have a
material adverse effect on the Company's ability to achieve its intended
long-term business objectives.
3. 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 D2D, LLC, after elimination of all inter-company transactions and
accounts. The Company formed another subsidiary, Direct2Data Technologies, Inc.,
which, to date, has no assets or operations.
35
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 impairment of assets and amortization period
for intangible and long-lived 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.
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, and overnight
repurchase agreements.
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." These investments are classified as available for
sale and are intended to be held for indefinite periods of time and are not
intended to be held to maturity. Securities available for sale are recorded at
fair value. Net 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 operations.
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. The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
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
36
The cost and accumulated depreciation of assets sold or retired are removed from
their respective accounts, and any resulting net gain or loss is recognized in
the accompanying consolidated statements of operations.
OTHER ASSETS
Included in other assets are patent costs, prepaid licensing fees, prepaid
compensation, deposits, prepaid non-compete 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 twenty-five
United States patents and sixteen 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 licensing fees represent costs incurred to obtain
licenses for use of certain technologies in future products. Prepaid licensing
fees are being amortized over their estimated economic lives. Prepaid
compensation represents compensation under employment agreements in connection
with the acquisition of STI assets in 2000. This prepaid compensation is
amortized to expense over the term of the related employment agreements, or
approximately three years. Prepaid non-compete and other intangible assets
represent intangible assets acquired in connection with the acquisition of STI
assets in 2000. These assets are being amortized over their estimated useful
lives of two to three years. SFAS No. 142, "Goodwill and Other Intangible
Assets", requires that goodwill and intangible assets with indefinite lives be
reviewed at least annually for impairment. The Company has applied SFAS No. 142
to its intangible assets. As of December 31, 2002, the Company has no intangible
assets with indefinite lives.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. For product sales, these criteria are generally met
at the time product is shipped. At the time revenue is recognized, the Company
provides for the estimated cost of product warranties. For training and other
service revenue, the Company recognizes revenue as the services are complete and
the Company has no significant remaining obligation to the customer. Revenue
from multi-element support contracts is recognized ratably over the life of the
agreement, generally one year.
WARRANTY COSTS
For camera products and related accessories, the Company warrants against
defects in workmanship and materials for approximately one year. For PVTV
systems, the Company warrants against software bugs and defects in workmanship
and material for a period of ninety days from the site commissioning date.
Estimated costs related to warranties are accrued at the time of revenue
recognition and are included in cost of sales. The Company offers extended
service and support contacts on its PVTV automated production systems. A
reconciliation of the changes in the aggregate product warranty liability for
the year ended December 31, 2002 is as follows:
37
Warranty Reserve
Debit/(Credit)
----------------
Balance at the beginning of the year $(212,107)
Accruals for warranties issued during the year (106,974)
Accruals related to pre-existing warranties (including
changes in estimates) 0
Settlements made (in cash or in kind) during the year 70,851
----------------
Balance at the end of the year $(248,230)
================
A reconciliation of the changes in the aggregate deferred revenue from extended
service contracts for the year ended December 31, 2002 is as follows:
Deferred Revenue
from Extended
Service Contracts
Debit/(Credit)
-----------------
Balance at the beginning of the year $(176,521)
Accruals for contracts issued during the year (708,013)
Revenue recognized during the year 500,830
-----------------
Balance at the end of the year $(383,704)
=================
ADVERTISING COSTS
Advertising costs are charged to operations when incurred.
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, 2002, 2001, and 2000, was 13,941,068, 13,785,276 and
12,688,275, respectively. The total number of options and warrants to purchase
6,518,250, 5,765,599, and 6,140,510 shares of common stock that were outstanding
during 2002, 2001 and 2000, respectively, were excluded from the computation of
diluted earnings per share as the effect of these options and warrants would
have been anti-dilutive.
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," as modified by SFAS No. 144, "Accounting
for the Impairment of Disposal of Long-Lived Assets" requires that long-lived
assets, including intangibles other than goodwill of an entity, be reviewed for
impairment during each reporting period. If circumstances suggest that their
values may be impaired, an assessment of 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, 2002, the Company does not believe any such assets
are impaired.
38
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 net 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 or taxes during 2002, 2001 or 2000. During 2002,
the Company issued restricted common stock as compensation to employees with an
aggregate fair value of approximately $111,000. During 2001, the Company issued
restricted common stock as compensation to employees and issued options for
professional services with an aggregate fair value of approximately $448,000. 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 16). 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.
INCOME TAX POLICY
The provision for income taxes is based on income before taxes as reported in
the accompanying Consolidated Statements of Operations. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns, in
accordance with SFAS No. 109. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
An assessment is made as to whether or not a valuation allowance is required to
offset deferred tax assets. This assessment includes anticipating future income.
ACCOUNTING FOR STOCK BASED COMPENSATION
At December 31, 2002, the Company has two stock-based employee compensation
plans, which are described more fully in Note 15. The Company accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of the grant. The following
table illustrates the effect on the net loss and loss per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation" to stock-based employee compensation.
2002 2001 2000
------------ ------------ ------------
Net Loss, as reported $(17,271,822) $(16,610,467) $(13,021,773)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (20,060,070) (17,853,766) (24,304,370)
------------ ------------ ------------
Pro Forma net loss (37,331,892) (34,464,233) (37,326,143)
============ ============ ============
Basic Net Loss Per Share: As Reported $ (1.24) $ (1.20) $ (1.03)
============ ============ ============
Pro Forma $ (2.68) $ (2.50) $ (2.94)
============ ============ ============
39
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 and 2000 consolidated
financial statements in order to conform to the 2002 presentation.
4. INVESTMENTS
-----------
At December 31, 2002 and 2001, short-term investments included investments
classified as available-for-sale reported at their fair value based on quoted
market prices of $13,867,763 and $26,908,362, respectively. For the years ended
December 31, 2002, 2001 and 2000, unrealized gains of $159,510, $204,239, and
$134,172 were recognized in other comprehensive income.
5. INVENTORIES
-----------
Inventories consisted of the following at December 31, 2002 and 2001:
2002 2001
------------ ------------
Purchased materials $ 2,010,578 $ 2,726,813
Work in process 74,707 169,248
Finished goods 672,356 887,081
Spare parts and demonstration inventory 1,165,545 1,515,967
------------ ------------
3,923,186 5,299,109
Less allowance for inventory obsolescence (832,302) (979,570)
------------ ------------
$ 3,090,884 $ 4,319,539
============ ============
6. PREPAID EXPENSES AND OTHER
--------------------------
Prepaid expenses and other consisted of the following at December 31, 2002 and
2001:
2002 2001
------------ ------------
Prepaid insurance $ 1,193,781 $ 593,351
Prepaid compensation 242,347 1,163,265
Other prepaid expenses 859,892 855,602
Interest and other receivables 190,583 406,133
Current deferred tax asset 100,773 74,469
------------ ------------
$ 2,587,376 $ 3,092,820
============ ============
40
7. PROPERTY AND EQUIPMENT, NET
---------------------------
Property and equipment, at cost, consisted of the following at December 31, 2002
and 2001:
2002 2001
------------ ------------
Manufacturing and office equipment $ 11,596,559 $ 10,690,977
Tools and dies 809,432 809,432
Leasehold improvements 748,976 720,308
Aircraft and vehicles 919,847 941,030
Furniture and fixtures 592,237 542,148
------------ ------------
14,667,051 13,703,895
Less accumulated depreciation (8,483,517) (6,700,430)
------------ ------------
$ 6,183,534 $ 7,003,465
============ ============
Depreciation expense related to property and equipment was $1,999,111,
$1,945,121, and $1,364,801, in 2002, 2001 and 2000, respectively.
8. OTHER ASSETS
------------
Other assets consist of the following at December 31, 2002 and 2001:
2002
----------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 9,611,828 $ (1,981,020) $ 7,630,808
Prepaid licensing fees 1,080,000 (120,167) 959,833
Prepaid compensation 2,327,677 (2,327,677) 0
Non-compete agreement 300,000 (300,000) 0
Other intangible assets 364,830 (339,489) 25,341
Deposits and other 254,821 0 254,821
------------ ------------ ------------
$ 13,939,156 $ (5,068,353) $ 8,870,803
============ ============ ============
2001
----------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 8,055,651 $ (1,302,297) $ 6,753,354
Prepaid compensation 2,327,677 (2,084,189) 243,488
Non-compete agreement 300,000 (268,750) 31,250
Other intangible assets 364,830 (217,881) 146,949
Deposits and other 208,128 0 208,128
------------ ------------ ------------
$ 11,256,286 $ (3,873,117) $ 7,383,169
============ ============ ============
Amortization of patents and copyrights, prepaid license fees, non-compete and
other intangibles was $951,748, $837,636, and $638,095, in 2002, 2001 and 2000,
respectively. Amortization of prepaid
41
compensation was $243,488, $1,028,833, and $1,055,356, in 2002, 2001 and 2000,
respectively. Future estimated amortization expense for other assets that have
remaining unamortized amounts as of December 31, 2002 were as follows:
2003 $821,000
2004 740,000
2005 713,000
2006 681,000
2007 530,000
9. INCOME TAXES AND TAX STATUS
---------------------------
The Company accounts for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes." As a result of current losses and full deferred
tax valuation allowances for all periods, no current or deferred tax provision
(benefit) was recorded for 2002, 2001, and 2000. 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, 2002, 2001 and 2000 is as
follows:
2002 2001 2000
------------ ------------ ------------
Tax benefit at statutory rate $ (5,872,419) $ (5,647,559) $ (4,427,403)
State tax benefit (604,514) (581,366) (472,690)
Increase in valuation allowance 7,062,479 7,998,118 5,640,588
Research and development credit (671,999) (1,842,778) (784,970)
Other 86,453 73,585 44,475
------------ ------------ ------------
$ 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, 2002 and 2001:
2002 2001
------------ ------------
Gross deferred tax assets:
Net operating loss carryforward $ 29,383,587 $ 23,565,217
Research and development credit 6,048,088 5,376,089
Inventories 466,262 723,628
Accrued liabilities 231,201 203,205
Deferred revenue 34,153 0
Patents and other 1,059,393 467,654
------------ ------------
37,222,684 30,335,793
Less valuation allowance (36,533,459) (29,470,980)
------------ ------------
689,225 864,813
------------ ------------
Gross deferred tax liabilities:
Depreciation 689,255 685,042
Deferred revenue 0 179,771
------------ ------------
689,255 864,813
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
42
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, 2002 and 2001 was $36,533,459 and
$29,470,980, respectively.
At December 31, 2002, the Company had net operating loss and research and
development tax credit carryforwards for income tax purposes of approximately
$78,356,233 and $6,048,088, respectively, which expire in varying amounts from
2008 through 2022. The Company's ability to benefit from the net operating loss
and research and development tax credit carryforwards could be limited under
certain provisions of the Internal Revenue Code if ownership of the Company
changes by more than 50%, as defined.
To the extent that net operating loss carryforwards, if realized, relate to the
portion associated with stock-based compensation, the resulting benefit will be
credited to shareholders' equity, rather than results of operations.
10. WARRANTY COSTS
--------------
For the years ended December 31, 2002, 2001 and 2000, warranty expenses were
approximately $107,000, $71,500, and $147,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASE COMMITMENTS
The Company's headquarters and Video Division operations are located in
Jacksonville, Florida, pursuant to a non-cancelable lease agreement (see Note
12). The lease is on a triple net basis and currently provides for a monthly
base rental payment of $23,276 through February 2007, with an option for
renewal.
The Company leases additional office space in Jacksonville, Florida under a
non-cancelable lease agreement which currently provides for a monthly base
rental payment of approximately $9,600 through May 2004.
The Company leases office space in Lake Mary, Florida for the Wireless
Division's Orlando design center. The lease term, as amended, commenced in
September 2000 and provides for a monthly rental payment of approximately
$30,250 through December 2005.
The Company leases office space in Pleasanton, California under a non-cancelable
lease agreement which commenced in March 2000 and provides for a monthly rental
payment of approximately $13,700 through March 2005. The Company ceased its
operations in Pleasanton at the end of 2001 with expectations of subletting the
property for the remaining lease term. Due to the declining real estate market
in the Pleasanton area, the Company has been unable to sublet the property.
During the year ended December 31, 2002, the remaining estimated future lease
obligation for the Pleasanton facility has been included in general and
administrative expense in the 2002 Consolidated Statements of Operations.
The Company leases a demonstration and training facility in Los Angeles,
California pursuant to a non-cancelable lease agreement. The lease provides for
a monthly rental payment of approximately $1,700 per month through May 2005.
43
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, 2002, 2001 and 2000 was $1,403,075, $971,283,
and $663,293, respectively. Future minimum lease payments under all
non-cancelable operating leases that have initial or remaining terms in excess
of one year as of December 31, 2002 were as follows:
2003 $ 943,000
2004 879,000
2005 622,000
2006 279,000
2007 47,000
Thereafter 0
----------
$2,770,000
==========
PURCHASE COMMITMENTS
The Company had no outstanding purchase commitments at December 31, 2002. Four
suppliers of significant components of the Company's PVTV system accounted for
an aggregate of 49% of the Company's component purchases for the year ended
December 31, 2002. Two suppliers of significant components of the Company's PVTV
system accounted for an aggregate of 21% of the Company's component purchases
for the year ended December 31, 2001. Another supplier accounted for 20% of the
Company's component purchases for the year ended December 31, 2000. No other
supplier accounted for more than 10% of the Company's component purchases in
2002, 2001 or 2000.
LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes, based upon advice from outside
legal counsel, that the final disposition of such matters will not have a
material adverse effect on its financial position, results of operations or
liquidity.
12. RELATED-PARTY TRANSACTIONS
--------------------------
The Company leases its manufacturing and headquarters office facilities from the
Chairman and Chief Executive Officer of the Company and Barbara Parker, a
related party. The lease's current terms obligate the Company through February
28, 2007 at a monthly base rental payment of $23,276, $23,276, and $24,288 in
2002, 2001 and 2000, respectively, with an option for renewal. The Company paid
approximately $1,801,000, $2,949,000, and $2,860,000 in 2002, 2001 and 2000,
respectively, for patent-related legal services to a law firm, of which Robert
Sterne, a Company director, is a partner. The Company paid Todd Parker, a
director and related party, approximately $75,000 and $34,000 for consulting
services in 2002 and 2001, respectively.
13. CONCENTRATIONS OF CREDIT RISK
-----------------------------
Financial instruments that potentially subject the Company to a concentration of
credit risk principally consist of cash, cash equivalents and accounts
receivable. At December 31, 2002, the Company had cash balances on deposit with
banks that exceeded the balance insured by the F.D.I.C.
44
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.
For the year ended December 31, 2002, three broadcast customers accounted for an
aggregate of approximately 46% of the Company's total revenues. No single
customer accounted for more than 10% of the Company's revenue in 2001. Two
customers accounted for approximately 16% and 30%, respectively of the Company's
revenues in 2000. Three broadcast customers accounted for an aggregate of
approximately 37% of accounts receivable at December 31, 2002. The Company
closely monitors extensions of credit and has never experienced significant
credit losses.
14. 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 the Wireless Division.
The Video Division is engaged in the design, development and marketing of PVTV
automated production systems and CameraMan automated video camera control
systems . The Company engages in direct selling of its PVTV broadcast systems
and sells its video products and education-based automated production systems
primarily through audiovisual dealers and other equipment manufacturers
throughout the United States and in Canada.
The Company's Wireless Division is engaged in the development and initial
commercialization of its D2D-based IC's. The D2D 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
wireless local area networks ("WLAN") and cellular telephones, among others. The
Company's Wireless Division has not generated any revenues to date.
Management primarily evaluates the operating performance of its segments based
on net sales and income (loss) 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 3.
Segment results are as follows (in thousands):
2002 2001 2000
---------- ---------- ----------
NET SALES:
Video Division $ 11,912 $ 9,315 $ 15,965
Wireless Division 0 0 0
---------- ---------- ----------
Total net sales $ 11,912 $ 9,315 $ 15,965
========== ========== ==========
45
2002 2001 2000
---------- ---------- ----------
LOSS FROM OPERATIONS
Video Division $ (2,012) $ (2,989) $ 99
Wireless Division (16,165) (15,363) (15,047)
Corporate 0 0 (22)
---------- ---------- ----------
Total loss from operations $ (18,177) $ (18,352) $ (14,970)
========== ========== ==========
DEPRECIATION:
Video Division $ 538 $ 549 $ 545
Wireless Division 1,461 1,397 820
---------- ---------- ----------
Total depreciation $ 1,999 $ 1,946 $ 1,365
========== ========== ==========
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS:
Video Division $ 139 $ 97 $ 70
Wireless Division 813 741 568
---------- ---------- ----------
Total amortization $ 952 $ 838 $ 638
========== ========== ==========
CAPITAL EXPENDITURES:
Video Division $ 590 $ 302 $ 309
Wireless Division 703 1,120 4,621
Corporate 26 13 186
---------- ---------- ----------
Total capital expenditures $ 1,319 $ 1,435 $ 5,116
========== ========== ==========
ASSETS:
Video Division $ 7,052 $ 6,843 $ 8,208
Wireless Division 13,758 14,229 14,302
Corporate 17,036 33,146 41,098
---------- ---------- ----------
Total assets $ 37,846 $ 54,218 $ 63,608
========== ========== ==========
Corporate assets consist of the following components:
December 31, December 31,
2002 2001
---------- ----------
Cash and investments $ 14,955 $ 31,466
Interest and other receivables 187 366
Prepaid expenses 1,267 643
Property and equipment, net 427 544
Other assets 200 127
---------- ----------
Total $ 17,036 $ 33,146
========== ==========
46
15. 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 259,536 shares of common
stock were available for future grants under the 1993 Plan at December 31, 2002.
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 2000 Plan are
generally exercisable immediately and expire ten years from the date of grant.
Options to purchase 2,952,340 shares of common stock were available for future
grants under the 2000 Plan at December 31, 2002.
The following table summarizes option activity in aggregate under the 1993 and
2000 Plans for each of the years ended December 31:
2002 2001 2000
------------------------- ------------------------- -------------------------
Wtd. Wtd. Wtd.
Avg. Ex. Avg. Ex. Avg. Ex.
Shares Price Shares Price Shares Price
------------------------- ------------------------- -------------------------
Outstanding at
beginning of year 3,761,573 $ 27.90 4,018,435 $ 27.28 2,284,030 $ 17.41
Granted 846,701 17.00 581,350 27.07 2,452,900 35.49
Exercised (32,600) 12.29 (193,200) 15.76 (206,065) 19.17
Forfeited (41,450) 28.96 (645,012) 26.65 (512,430) 25.83
------------------------- ------------------------- -------------------------
Outstanding at
end of year 4,534,224 $ 25.98 3,761,573 $ 27.90 4,018,435 $ 27.28
========================= ========================= =========================
Exercisable at
end of year 2,709,330 $ 24.68 1,877,577 $ 25.12 1,450,958 $ 24.42
========================= ========================= =========================
Weighted average
fair value of
options granted $ 10.05 $ 17.19 $ 24.01
========== ========== ==========
47
The options outstanding at December 31, 2002 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 at Wtd. Avg.
Exercise December Contractual Exercise December 31, Exercise
Prices 31, 2002 Life Price 2002 Price
- ----------------------- ----------------- -------------- -------------- ---------------- -------------
$5.00-$7.25 131,400 9 years $7.15 61,400 $7.04
$7.55-$8.983 105,800 4 years $7.98 93,000 $7.90
$11.875-$17.60 956,400 5 years $14.30 657,400 $14.06
$18.09-$26.938 1,656,524 8 years $21.34 1,011,781 $21.17
$27.188-$39.00 648,800 7 years $30.57 282,400 $31.71
$41.00-$61.50 1,035,300 8 years $45.56 603,349 $43.22
----------------- ----------------
4,534,224 2,709,330
================= ================
NON-PLAN OPTIONS/WARRANTS
The Company has granted options and warrants outside the 1993 and 2000 Plans for
employment inducements, non-employee consulting services, and for underwriting
and other services in connection with securities offerings. Non-plan options and
warrants are generally granted with exercise prices equal to fair market value
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:
2002 2001 2000
------------------------- ------------------------- -------------------------
Wtd. Wtd. Wtd.
Avg. Ex. Avg. Ex. Avg. Ex.
Shares Price Shares Price Shares Price
------------------------- ------------------------- -------------------------
Outstanding at
beginning of year 2,004,026 $ 34.26 2,122,075 $ 32.91 1,761,625 $ 21.03
Granted 0 0.00 83,451 34.30 1,058,950 45.23
Exercised (20,000) 5.00 (101,500) 10.00 (298,500) 10.44
Forfeited 0 0.00 (100,000) 29.94 (400,000) 30.00
------------------------- ------------------------- -------------------------
Outstanding end of
year 1,984,026 $ 34.56 2,004,026 $ 34.26 2,122,075 $ 32.91
========================= ========================= =========================
Exercisable at
end of year 1,749,098 $ 36.28 1,176,798 $ 31.79 677,547 $ 13.97
========================= ========================= =========================
Weighted average
fair value of
options granted N/A $ 16.88 $ 12.43
========== ========== ==========
48
The non-plan options and warrants outstanding at December 31, 2002 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 at Wtd. Avg.
Exercise December Contractual Exercise December 31, Exercise
Prices 31, 2002 Life Price 2002 Price
- --------------------- ----------------- --------------- ------------- ---------------- -------------
$5.00 30,000 1 years $5.00 30,000 $5.00
$18.75-$23.25 811,625 5 years $21.75 576,697 $21.76
$28.33-$39.84 612,926 7 years $33.87 612,926 $33.87
$56.66 529,475 7 years $56.66 529,475 $56.66
----------------- ----------------
1,984,026 1,749,098
================= ================
In March 2001, in connection with a private placement transaction (see note 17),
the Company issued warrants for the purchase of 83,451 shares of the Company's
common stock to Texas Instruments, Inc. These warrants are immediately vested
with exercise prices ranging from $29.96 to $39.84 per share and expire ten
years from the date of grant. The warrants had an estimated fair market value of
$16.88 per share, or approximately $1.4 million. 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 6.3%, no
expected dividend yield, expected life of five years and expected volatility of
63%.
In April 2001, the Company granted stock options under the 1993 Stock Plan (the
"1993 Plan") to purchase an aggregate of 35,000 shares of its common stock to
various patent attorneys. The shares were granted at an exercise price of $25
per share and expire three years from the date of grant. The estimated fair
value of these options at the date of grant was approximately $9.22 per share,
or $323,300, which is included in expense in the accompanying consolidated
statements of operations. The fair value was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 6%, no expected dividend yield, expected
life of two years and expected volatility of 60%.
Also 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
Ltd. and Leucadia National (see Note 16). These warrants vested 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 became vested. The warrants had an
estimated fair value of $12.43 per share, or approximately $13.2 million. The
weighted average 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%.
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:
49
2002 2001 2000
-------------- -------------- --------------
Net Loss: As Reported $ (17,271,822) $ (16,610,467) $ (13,021,773)
Pro Forma (37,331,892) (34,464,233) (37,326,143)
Basic Net Loss Per Share: As Reported $ (1.24) $ (1.20) $ (1.03)
Pro Forma (2.68) (2.50) (2.94)
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 2002, 2001 and 2000:
2002 2001 2000
------------- -------------- --------------
Expected volatility 48%-71% 59%-64% 59%-69%
Risk free interest rate 2.74%-5.29% 3.62%-5.28% 5.56%-6.78%
Expected life 5-11 years 4-11 years 1-15 years
Dividend yield -- -- --
16. 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 Series D Preferred
Stock (see note 17). The acquisition was accounted for as a purchase under
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
their fair value at the date of the acquisition. 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.
17. STOCK AUTHORIZATION AND ISSUANCE
--------------------------------
PREFERRED STOCK
In March 2000, the Company issued 79,868 shares of Series D Preferred Stock, $1
par value, $25 stated value, for the acquisition of substantially all of the
assets of 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.
In March 2001, the Series A and D preferred shares were converted to
approximately 86,000 shares of common stock. In March 2002, the Series B shares
were converted to approximately 16,600 shares of common stock. The Series C
Preferred Stock was automatically converted to approximately 73,000 shares of
common stock on March 10, 2003.
50
COMMON STOCK
In March 2001, the Company issued 83,451 shares of its Common Stock to Texas
Instruments, Inc. in a private placement transaction. The shares represent less
than 1% of the Company's outstanding common stock and were sold at a price of
$29.96 per share for net proceeds of approximately $2.5 million. In May 2000,
the Company issued an aggregate of 1,058,950 shares of its common stock to Tyco
International, Ltd. 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.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
For the three months ended For the year
--------------------------------------------------------------- ended
March 31, June 30, September 30, December 31, December 31,
2002 2002 2002 2002 2002
------------ ------------ ------------ ------------ ------------
Revenues $ 3,026,007 $ 3,024,108 $ 2,280,596 $ 3,581,202 $ 11,911,913
Gross margin 1,273,474 1,129,889 747,501 1,551,764 4,702,628
Net loss (3,654,921) (4,269,573) (4,400,322) (4,947,006) (17,271,822)
Basic and diluted
net loss per
common share $ (0.26) $ (0.31) $ (0.31) $ (0.35) $ (1.24)
For the three months ended For the year
--------------------------------------------------------------- ended
March 31, June 30, September 30, December 31, December 31,
2001 2001 2001 2001 2001
------------ ------------ ------------ ------------ ------------
Revenues $ 1,986,589 $ 2,657,815 $ 2,319,025 $ 2,352,016 $ 9,315,445
Gross margin 828,346 880,193 734,261 818,841 3,261,641
Net loss (3,720,399) (4,319,914) (4,128,592) (4,441,562) (16,610,467)
Basic and diluted
net loss per
common share $ (0.27) $ (0.31) $ (0.30) $ (0.32) $ (1.20)
19. SUBSEQUENT EVENT
----------------
On March 26, 2003, the Company received $5,078,200 from the sale of an aggregate
of 1,154,437 shares of its common stock in private placement transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended. These shares
constitute approximately 7.6% of the Company's outstanding common stock on an
after-issued basis. Leucadia National Corporation and another third party
purchased 659,387 shares of common stock at a price of $3.91 per share. The
Parker family, including CEO Jeffrey Parker, purchased 495,050 shares of common
stock at the market price of $5.05 per share.
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 2003 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 "2003 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Election of Directors - Executive
Compensation" in the 2003 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION
The following table gives the information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2002, including the 1993
Stock Plan, the 2000 Performance Equity Plan and other miscellaneous plans.
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
------------- ------------------- ------------------- ------------------------
( a ) ( b ) ( c )
Equity compensation plans approved
by security holders 4,534,224 $25.98 3,211,876
Equity compensation plans not
approved by security holders 661,625 $20.78 None
----------------------- --------------------------
Total 5,195,849 3,211,876
======================= ==========================
The equity compensation plans reported upon in the above table not approved by
security holders include:
52
i) Options to purchase 50,000 shares were granted to the CEO, Jeffrey
Parker, in October 1993 at an exercise price of $5 per share. These
options were immediately vested and expire in October 2003. As of
December 31, 2002, options to purchase 30,000 shares were
outstanding.
ii) Options to purchase 476,625 shares were granted pursuant to an
employment agreement with a former executive officer, Richard
Sisisky, in May 1998 at an exercise price of $21.375 per share. These
options vest through 2003 and have differing expirations.
iii) Options to purchase 25,000 shares granted to two directors in March
1999 at exercise prices of $23.25 per share. These options were
immediately vested and expire in March 2009.
iv) Options to purchase 40,000 shares granted to consultants in November
1998 at exercise prices of $18.75 per share. These options are fully
vested and expire in November 2003.
v) Options to purchase 100,000 shares granted to an employee in March
1999 at an exercise price of $23.25. These options vest ratably over
five years and expire in May 2009. As of December 31, 2002, options
to purchase 90,000 shares were outstanding.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners" in the 2003 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 2003 Proxy Statement is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Based on the evaluation conducted by the Chief Executive Officer ("CEO") and
Chief Accounting Officer ("CAO"), as of a date within 90 days of the filing date
of this annual report ("Evaluation Date"), of the effectiveness of the Company's
disclosure controls and procedures, the CEO and CAO concluded that, as of the
Evaluation Date, (1) there were no significant deficiencies or material
weaknesses in the Company's disclosure controls and procedures, (2) there were
no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the Evaluation Date and (3)
no corrective actions were required to be taken.
ITEM 15. 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)
53
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 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)
4.3 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)
4.4 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)
4.5 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)
4.6 Purchase Option between the Registrant and Texas
Instruments, Inc. dated March 8, 2001(incorporated by
reference from exhibit 4.7 of Annual Report on Form 10-K for
the year ended December 31, 2000)
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)
54
10.4 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)
10.5 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)
10.6 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)
10.7 Fourth 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 10.8 of the Annual Report on Form
10-K for the period ended December 31, 2001)
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)
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)
55
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 (incorporated by
reference fro the Exhibit 10.16 of the Annual Report on Form
10-K for the period ended December 31, 2000)
10.17 Employment agreement dated September 7, 2000 between Jeffrey
Parker and Registrant (incorporated by reference from
Exhibit 10.1 of Quarterly Report on Form 10-Q for the period
ended June 30. 2001)
10.18 Stock option agreement dated September 7, 2000 between
Jeffrey Parker and Registrant (incorporated by reference
from Exhibit 10.2 of Quarterly Report on Form 10-Q for the
period ended June 30. 2001)
10.19 Stock option agreement dated September 7, 2000 between
Jeffrey Parker and Registrant (incorporated by reference
from Exhibit 10.3 of Quarterly Report on Form 10-Q for the
period ended June 30. 2001)
10.20 Employment agreement dated March 6, 2002 between David
Sorrells and Registrant (incorporated by reference from
Exhibit 10.21 of Annual Report on Form 10-K for the period
ended December 31, 2001)
10.21 2000 Performance Equity Plan (incorporated by reference from
Exhibit 10.11 of Registration Statement No. 333-43452)
10.22 Form of 2002 Indemnification Agreement for Directors and
Officers (incorporated by reference from Exhibit 10.1 of
Quarterly Report on Form 10-Q for the period ended September
30, 2002)
10.23 Resignation Agreement, Waiver and Release dated January 9,
2003 between Richard L. Sisisky and Registrant*
10.24 Subscription agreement between the Registrant and Leucadia
National Corporation dated March 26, 2003*
56
10.25 Subscription agreement between the Registrant and Jeffrey
Parker dated March 26, 2003*
10.26 Subscription agreement between the Registrant and Barbara
Parker dated March 26, 2003*
10.27 Subscription agreement between the Registrant and Todd
Parker dated March 26, 2003*
10.28 Subscription agreement between the Registrant and Stacie
Wilf dated March 26, 2003*
10.29 Subscription agreement between the Registrant and David
Cumming dated March 26, 2003*
22.1 Table of Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
99.1 Risk Factors*
* Filed herewith
(B) REPORTS ON FORM 8-K
None.
57
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 31, 2003 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 31, 2003
---------------------------- of the Board (Principal Executive Officer)
Jeffrey L. Parker
By: /s/ Todd Parker President, Video Business Unit and Director March 31, 2003
----------------------------
Todd Parker
By: /s/ David F. Sorrells Chief Technical Officer and Director March 31, 2003
----------------------------
David F. Sorrells
By: /s/ Stacie Wilf Secretary, Treasurer and Director March 31, 2003
----------------------------
Stacie Wilf
By: /s/ Cynthia L. Poehlman Chief Accounting Officer March 31, 2003
---------------------------- (Principal Accounting Officer)
Cynthia L. Poehlman
By: /s/ William A. Hightower Director March 31, 2003
----------------------------
William A. Hightower
By: /s/ Richard Kashnow Director March 31, 2003
----------------------------
Richard Kashnow
By: /s/ Amy L. Newmark Director March 31, 2003
----------------------------
Amy L. Newmark
By: /s/ William L. Sammons Director March 31, 2003
----------------------------
William L. Sammons
By: /s/ Oscar S. Schafer Director March 31, 2003
----------------------------
Oscar S. Schafer
By: /s/ Robert G. Sterne Director March 31, 2003
----------------------------
Robert G. Sterne
58
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, 2000 $503,812 $320,000 $ (55,527) $768,285
Year ended December 31, 2001 768,285 320,000 (108,715) 979,570
Year ended December 31, 2002 979,570 521,573 (668,841) 832,302
Balance at Balance at
Valuation Allowance for Beginning Write- End of
Income Taxes of Period Provision Offs Period
- ---------------------------- --------- ---------- ---------- ----------
Year ended December 31, 2000 $15,832,274 $5,640,588 $0 $21,472,862
Year ended December 31, 2001 21,472,862 7,998,118 0 29,470,980
Year ended December 31, 2002 29,470,980 7,062,479 0 36,533,459
59
FORM OF CERTIFICATION
PURSUANT TO RULE 13A-14 AND 15D-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Jeffrey L. Parker, certify that:
1. I have reviewed this Annual Report on Form 10-K of ParkerVision, Inc.;
2. based on my knowledge, this Annual Report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;
3. based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing date
of this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Jeffrey L. Parker
-------------------- ---------------------
Name: Jeffrey L. Parker
Title: Chairman and Chief Executive Officer
60
FORM OF CERTIFICATION
PURSUANT TO RULE 13A-14 AND 15D-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Cynthia L. Poehlman, certify that:
1. I have reviewed this Annual Report on Form 10-K of ParkerVision, Inc.;
2. based on my knowledge, this Annual Report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;
3. based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing date
of this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Cynthia L. Poehlman
-------------------- -----------------------
Name: Cynthia L. Poehlman
Title: Chief Accounting Officer
61
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ParkerVision, Inc. (the "Company") on
Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), each of the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
March 31, 2003 By: /s/ Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
March 31, 2003 By: /s/ Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Accounting Officer
62
EXHIBIT INDEX
10.23 Resignation Agreement, Waiver and Release dated January 9, 2003 between
Richard L. Sisisky and Registrant
10.24 Subscription agreement between the Registrant and Leucadia National
Corporation dated March 26, 2003
10.25 Subscription agreement between the Registrant and Jeffrey Parker dated
March 26, 2003
10.26 Subscription agreement between the Registrant and Barbara Parker dated
March 26, 2003
10.27 Subscription agreement between the Registrant and Todd Parker dated
March 26, 2003
10.28 Subscription agreement between the Registrant and Stacie Wilf dated
March 26, 2003
10.29 Subscription agreement between the Registrant and David Cumming dated
March 26, 2003
22.1 Table of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Risk Factors