UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ________to____________
Commission file number 0-22904
-------
PARKERVISION, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2971472
(State or other jurisdiction of I.R.S. Employer ID No.
incorporation or organization)
8493 Baymeadows Way
Jacksonville, Florida 32256
(904) 737-1367
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by rule 12b-2 of the Exchange Act). Yes X No .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 5, 2003, 15,640,940 shares of the Issuer's Common Stock, $.01 par
value, were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
ASSETS 2003 2002
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 223,875 $ 1,087,033
Short-term investments 6,758,090 13,867,763
Accounts receivable, net of allowance for
doubtful accounts of $96,768 at
September 30, 2003 and $109,584 at
December 31, 2002
1,828,722 2,158,577
Inventories, net 2,527,727 3,090,884
Prepaid expenses and other 1,901,114 2,587,376
------------ ------------
Total current assets 13,239,528 22,791,633
PROPERTY AND EQUIPMENT, net 5,033,897 6,183,534
INTANGIBLE ASSETS AND OTHER, net 11,532,498 8,870,803
------------ ------------
Total assets $ 29,805,923 $ 37,845,970
============ ============
The accompanying notes are an integral part of these balance sheets.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002
- ------------------------------------ ------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 1,088,894 $ 759,242
Accrued expenses:
Salaries and wages 772,069 951,430
Warranty reserves 192,294 248,230
Lease obligation 228,747 357,417
Professional fees 109,228 271,225
Other accrued expenses 101,644 107,598
Deferred revenue 1,036,228 1,003,466
------------ ------------
Total current liabilities 3,529,104 3,698,608
DEFERRED INCOME TAXES 100,773 100,773
COMMITMENTS AND CONTINGENCIES
(Note 9)
------------ ------------
Total liabilities 3,629,877 3,799,381
------------ ------------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, $1 par value,
5,000,000 shares authorized, 0 and 13,678
shares issued and outstanding at September
30, 2003 and December 31, 2002, respectively
0 13,678
Common stock, $.01 par value, 100,000,000
shares authorized, 15,635,940 and 13,989,329
shares issued and outstanding at September
30, 2003 and December 31, 2002, respectively 156,359 139,893
Warrants outstanding 16,807,505 16,807,505
Additional paid-in capital 99,010,677 90,428,998
Accumulated other comprehensive income 90,228 310,869
Accumulated deficit (89,888,723) (73,654,354)
------------ ------------
Total shareholders' equity 26,176,046 34,046,589
------------ ------------
Total liabilities and
shareholders' equity $ 29,805,923 $ 37,845,970
============ ============
The accompanying notes are an integral part of these balance sheets.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Product revenue, net $ 1,025,841 $ 1,956,242 $ 4,623,254 $ 7,467,032
Support and other services revenue, net 324,698 324,354 877,692 863,679
------------ ------------ ------------ ------------
Total net revenues 1,350,539 2,280,596 5,500,946 8,330,711
------------ ------------ ------------ ------------
Cost of goods sold - products 622,008 1,244,385 2,794,464 4,293,539
Cost of goods sold - support and other services 311,643 288,710 898,491 886,308
------------ ------------ ------------ ------------
Total cost of goods sold 933,651 1,533,095 3,692,955 5,179,847
------------ ------------ ------------ ------------
Gross margin 416,888 747,501 1,807,991 3,150,864
------------ ------------ ------------ ------------
Research and development expenses 3,849,680 3,539,049 11,618,542 10,193,682
Marketing and selling expenses 814,626 707,131 2,788,800 2,528,586
General and administrative expenses 1,359,822 1,141,351 3,918,048 3,426,597
Loss (Gain) on disposal of property and
equipment 84,007 (448) 84,007 51,643
------------ ------------ ------------ ------------
Total operating expenses 6,108,135 5,387,083 18,409,397 16,200,508
------------ ------------ ------------ ------------
Loss from operations (5,691,247) (4,639,582) (16,601,406) (13,049,644)
Interest and other income 64,089 239,260 367,037 724,828
------------ ------------ ------------ ------------
Net loss $ (5,627,158) $ (4,400,322) $(16,234,369) $(12,324,816)
============ ============ ============ ============
Basic and diluted net loss per common share $ (0.36) $ (0.31) $ (1.08) $ (0.88)
============ ============ ============ ============
The accompanying notes are an integral part of these balance sheets.
4
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,627,158) $ (4,400,322) $(16,234,369) $(12,324,816)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debts 0 5,202 0 31,186
Depreciation and amortization 700,074 758,535 2,152,012 2,192,822
Amortization of discounts on investments 39,843 88,476 131,266 214,611
Provision for obsolete inventories 75,000 75,000 225,000 225,000
Stock compensation 200,000 290,816 793,096 984,575
Gain on sale of investments (31,876) (88,523) (201,482) (102,772)
Loss on disposal of property and equipment 84,007 (448) 84,007 51,643
Changes in operating assets and liabilities:
Accounts receivable, net 5,364 (5,235) 329,855 (1,009,671)
Inventories (446,045) 274,217 338,157 (116,373)
Prepaid and other assets 458,444 (228,643) 965,563 83,808
Accounts payable and accrued expenses 217,425 176,228 (202,266) (67,638)
Deferred revenue (8,919) (68,821) 32,762 (191,242)
------------ ------------ ------------ ------------
Total adjustments 1,293,317 1,276,804 4,647,970 2,295,949
------------ ------------ ------------ ------------
Net cash used in operating activities (4,333,841) (3,123,518) (11,586,399) (10,028,867)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments available for sale (792,657) (7,689,821) (5,603,060) (15,499,492)
Proceeds from sale and maturity of investments 3,098,805 6,902,572 12,562,309 24,562,394
Proceeds from sale of property and equipment 437,855 460 437,855 7,660
Purchases of property and equipment (411,154) (120,875) (849,570) (797,611)
Payments for patent costs (225,459) (383,859) (908,011) (1,161,947)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities 2,107,390 (1,291,523) 5,639,523 7,111,004
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,870 100,000 5,083,718 483,225
------------ ------------ ------------ ------------
Net cash provided by financing activities 4,870 100,000 5,083,718 483,225
------------ ------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,221,581) (4,315,041) (863,158) (2,434,638)
CASH AND CASH EQUIVALENTS, beginning of period 2,445,456 6,443,938 1,087,033 4,563,535
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 223,875 $ 2,128,897 $ 223,875 $ 2,128,897
============ ============ ============ ============
The accompanying notes are an integral part of these balance sheets.
5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
-------------------
The accompanying unaudited consolidated financial statements of
ParkerVision, Inc. and subsidiary (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. All normal and recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the
financial condition and results of operations have been included. Operating
results for the nine-month period ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
These interim consolidated financial statements should be read in
conjunction with the Company's latest Annual Report on Form 10-K for the
year ended December 31, 2002. There have been no changes in accounting
policies from those stated in the Annual Report on Form 10-K for the year
ended December 31, 2002.
COMPREHENSIVE INCOME. The Company's other comprehensive income is comprised
of net unrealized gains (losses) on investments available-for-sale which
are included in accumulated other comprehensive income in the consolidated
balance sheets. The Company's other comprehensive (loss) income for the
three-month periods ended September 30, 2003 and 2002 was $(57,392) and
$164,152, respectively. The Company's total comprehensive loss for the
three-month periods ended September 30, 2003 and 2002 was $(5,684,550) and
$(4,236,170), respectively. The Company's other comprehensive (loss) income
for the nine-month periods ended September 30, 2003 and 2002 was $(220,641)
and $205,595 respectively. The Company's total comprehensive loss for the
nine-month periods ended September 30, 2003 and 2002 was $(16,455,010) and
$(12,119,221), respectively.
CONSOLIDATED STATEMENTS OF CASH FLOWS. The Company paid no cash for income
taxes or interest for the three or nine-month periods ended September 30,
2003 and 2002. On April 28, 2003 the Company issued restricted common
stock, valued at approximately $2,400,000, under the terms of the 2000
Performance Equity Plan as consideration for professional services (see
note 8). On September 19, 2003 the Company issued restricted common stock,
valued at approximately $950,000, as consideration for a license agreement
(see note 8).
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 contracts on its PVTV automated
production systems. A reconciliation of the changes in the aggregate
product warranty liability for the nine month period ended September 30,
2003 is as follows:
6
Warranty Reserve
Debit/(Credit)
------------
Balance at the beginning of the period $ (248,230)
Accruals for warranties issued during the period (46,382)
Settlements made (in cash or in kind) during the year 102,318
------------
Balance at the end of the period $ (192,294)
============
A reconciliation of the changes in the aggregate deferred revenue from
extended service contracts for the nine-month period ended September 30,
2003 is as follows:
Deferred Revenue
from Extended
Service Contracts
Debit/(Credit)
------------
Balance at the beginning of the period $ (383,704)
Accruals for contracts issued during the period (456,401)
Revenue recognized during the period 382,825
------------
Balance at the end of the period $ (457,280)
============
ACCOUNTING FOR STOCK BASED COMPENSATION. At September 30, 2003, the Company
has two stock-based employee compensation plans, which are accounted for
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" as amended by
FASB Statement No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" to stock-based employee compensation.
Nine months ended
----------------------------
September 30, September 30,
2003 2002
------------ ------------
Net loss, as reported $(16,234,369) $(12,324,816)
Deduct:Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects
(10,888,006) (14,646,458)
------------ ------------
Pro forma net loss $(27,122,375) $(26,971,274)
============ ============
Basic net loss per share: As reported $ (1.08) $ (.88)
============ ============
Pro forma $ (1.81) $ (1.93)
============ ============
7
RECENT ACCOUNTING PRONOUNCEMENTS. In May 2003, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity". SFAS 150 addresses the classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. It requires that certain financial instruments
within its scope be classified as a liability if the instrument embodies an
obligation of the issuer. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. Portions of this standard have been deferred for further
discussions by the FASB. The Company does not expect the implementation of
this standard in its current form to have any impact on its financial
statements. However, it is not determinable as to what impact the deferred
portions of this standard may have in future periods.
RECLASSIFICATIONS. Certain reclassifications have been made to the 2002
financial statements in order to conform to the 2003 presentation.
2. LIQUIDITY
---------
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 nine-month period ended September 30, 2003, the Company
incurred a net loss of approximately $16.2 million and negative cash flows
from operations of approximately $11.6 million. At September 30, 2003, the
Company had an accumulated deficit of approximately $89.9 million and
working capital of approximately $9.7 million. Although the Company began
sales of its wireless products in the fourth quarter of 2003, the revenues
from these and other sales will not be sufficient to offset the expenses
from continued investment in its video and wireless product development and
marketing activities. Therefore, operating losses and negative cash flows
will continue through 2003 and possibly beyond.
The long-term continuation of the Company's business plans is dependent
upon generation of sufficient revenues from its products to offset expenses
and additional financing. In the event that the Company does not generate
sufficient revenues, it will be required to obtain additional funding
through public or private financing, commercial borrowings or other
financings 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.
On November 12, 2003, the Company signed subscription agreements with
institutional and other investors for the sale of 2,310,714 shares of the
Company's common stock at $8.75 per share in a private placement
transaction. The Company will receive approximately $19,000,000 in net
proceeds. These proceeds, when received, together with the Company's
current cash and investments, are expected to be sufficient to fund
operations for the next 12 months as well as on a longer term basis if
necessary.
8
3. LOSS PER SHARE
--------------
Basic loss per share is determined based on the weighted average number of
common shares outstanding during each period. Diluted loss per share is the
same as basic loss per share as all common share equivalents are excluded
from the calculation, as their effect is anti-dilutive. The weighted
average number of common shares outstanding for the three-month periods
ended September 30, 2003 and 2002 is 15,513,757 and 13,976,225,
respectively. The weighted average number of common shares outstanding for
the nine-month periods ended September 30, 2003 and 2002 is 15,008,425 and
13,940,916, respectively. The total number of options and warrants to
purchase 7,322,735 and 6,307,700 shares of common stock that were
outstanding at September 30, 2003 and 2002, respectively, were excluded
from the computation of diluted earnings per share as the effect of these
options and warrants would have been anti-dilutive.
4. INVENTORIES:
-----------
Inventories consist of the following:
September 30, December 31,
2003 2002
------------ ------------
Purchased materials $ 1,797,918 $ 2,010,578
Work in process 84,776 74,707
Finished goods 458,554 672,356
Spare parts and demonstration inventory 1,200,326 1,165,545
------------ ------------
3,541,574 3,923,186
Less allowance for inventory obsolescence (1,013,847) (832,302)
------------ ------------
$ 2,527,727 $ 3,090,884
============ ============
5. OTHER ASSETS:
------------
Other assets consists of the following:
September 30, 2003
--------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,519,842 $ (2,468,347) $ 8,051,495
Prepaid services 1,600,000 (400,000) 1,200,000
Prepaid licensing fees 2,030,000 (282,167) 1,747,833
Other intangible assets 364,830 (364,830) 0
Deposits and other 533,170 0 533,170
------------ ------------ ------------
$ 15,047,842 $ (3,515,344) $ 11,532,498
============ ============ ============
December 31, 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
Other intangible assets 364,830 (339,489) 25,341
Deposits and other 254,821 0 254,821
------------ ------------ ------------
$ 11,311,479 $ (2,440,676) $ 8,870,803
============ ============ ============
9
6. BUSINESS SEGMENT INFORMATION
----------------------------
The Company's segments include the Video Products Division ("Video
Division") and the Wireless Technology Division ("Wireless Division").
Certain reclassifications have been made to the 2002 segment results in
order to conform with the 2003 presentation. Segment results are as follows
(in thousands):
Three months ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
NET REVENUES:
Video Division $ 1,351 $ 2,281 $ 5,501 $ 8,331
Wireless Division 0 0 0 0
------------ ------------ ------------ ------------
Total net revenues $ 1,351 $ 2,281 $ 5,501 $ 8,331
============ ============ ============ ============
LOSS FROM OPERATIONS:
Video Division $ (835) $ (548) $ (2,454) $ (1,245)
Wireless Division (4,022) (3,462) (11,746) (10,008)
Corporate (834) (630) (2,401) (1,797)
------------ ------------ ------------ ------------
Loss from operations $ (5,691) $ (4,640) $ (16,601) $ (13,050)
============ ============ ============ ============
DEPRECIATION:
Video Division $ 103 $ 125 $ 328 $ 363
Wireless Division 347 356 1,052 1,032
Corporate 31 36 98 108
------------ ------------ ------------ ------------
Total depreciation $ 481 $ 517 $ 1,478 $ 1,503
============ ============ ============ ============
AMORTIZATION OF IDENTIFIABLE
INTANGIBLES AND OTHER ASSETS:
Video Division $ 51 $ 36 $ 129 $ 97
Wireless Division 168 205 545 592
------------ ------------ ------------ ------------
Total amortization $ 219 $ 241 $ 674 $ 689
============ ============ ============ ============
CAPITAL EXPENDITURES:
Video Division $ 14 $ 33 $ 100 $ 269
Wireless Division 397 68 750 503
Corporate 0 20 0 26
------------ ------------ ------------ ------------
Total capital expenditures $ 411 $ 121 $ 850 $ 798
============ ============ ============ ============
September 30, December 31,
2003 2002
------------ ------------
ASSETS:
Video Division $ 5,775 $ 7,052
Wireless Division 14,237 12,893
Corporate 9,794 17,901
------------ ------------
Total assets $ 29,806 $ 37,846
============ ============
10
Corporate assets consist of the following:
September 30, December 31,
2003 2002
------------ ------------
Cash and investments $ 6,982 $ 14,955
Prepaid and other 529 1,457
Property and equipment, net 630 1,276
Other assets 1,653 213
------------ ------------
Total assets $ 9,794 $ 17,901
============ ============
7. STOCK OPTIONS
-------------
For the three month period ended September 30, 2003, the Company granted
stock options under the 1993 Stock Plan (the "1993 Plan") to purchase an
aggregate of 5,000 shares of its common stock at an exercise price of $6.48
per share in connection with retention of employees. These options vest
ratably over five years and expire on the fifth anniversary of the last
vesting date.
For the three months ended September 30, 2003 the Company granted stock
options under the 2000 Performance Equity Plan (the "2000 Plan") in
connection with hiring and retention of employees to purchase an aggregate
of 24,800 shares of its common stock at exercise prices ranging from $6.71
to $7.89 per share. These options vest ratably over five years and expire
five years from the date they become vested. The Company also granted a
stock option to an officer and director of the Company to purchase 500,000
shares of its common stock at an exercise price of $8.00 per share. These
options vest ratably over five years and expire on the fifth anniversary of
the last vesting date. The Company also granted a stock option under the
2000 Plan to a director of the Company to purchase 100,000 shares of its
common stock at an exercise price of $7.25 per share. This option vests
ratably over two years and expires ten years from the date it becomes
vested.
As of September 30, 2003 options to purchase 1,916,160 shares of common
stock were available for future grants under the 2000 Plan. As of September
10, 2003 the Company was no longer able to issue grants under the 1993
Plan.
8. STOCK AUTHORIZATION AND ISSUANCE
--------------------------------
COMMON STOCK
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.
On April 28, 2003, the Company entered into an agreement with a corporate
third party to conceive and develop new business opportunities for the
Company. In consideration of the services to be rendered over a three-year
term, the Company issued 250,000 shares of restricted common stock, under
the terms of the 2000 Performance Equity Plan with an aggregate value of
approximately $2,400,000, or $9.60 per share. The shares are fully vested
and non-forfeitable, and they are subject
11
to a sales limitation of a maximum of 83,334 shares per year. The
$2,400,000 was capitalized and is being amortized to expense over the
three-year term of the related agreement.
On September 3, 2003, the Company entered into a license agreement with
SkyCross, Inc. ("SkyCross") for certain antenna technology to be utilized
in current and future products for the Company's wireless division. In
consideration for the license, the Company issued 138,158 shares of
restricted common stock with an aggregate value of $950,000 or $6.88 per
share. These shares were subsequently registered for resale by SkyCross
under an S-3 registration statement. The shares are fully vested and
non-forfeitable, and they are subject to a sales limitation of a maximum of
2,500 shares per day, or 5% of the average daily trading volume, whichever
is greater. The agreement provides that, if under certain circumstances
SkyCross does not realize at least $950,000 from the sale of the stock by
January 1, 2004, the Company will issue additional shares or pay SkyCross
an amount equal to the value of the shortfall.
9. LEGAL PROCEEDINGS
-----------------
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on its financial
position, results of operations or liquidity.
10. SUBSEQUENT EVENT
----------------
On November 12, 2003, the Company signed subscription agreements with
institutional and other investors for the sale of 2,310,714 shares of the
Company's common stock at $8.75 per share in a private placement
transaction. The Company will receive approximately $19,000,000 in proceeds
net of investment banking fees of approximately 1.2 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
- --------------------------
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result",
"management expects" or "Company expects", "will continue", "is anticipated",
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on such
forward-looking statements, each of which speaks only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected, including the timely development and acceptance of new
products, sources of supply and concentration of customers. The Company has no
obligation to publicly release the results of any revisions, which may be made
to any forward-looking statements to reflect, anticipated events or
circumstances occurring after the date of such statements.
12
Results of Operations for Each of the Three and Nine-month Periods Ended
- --------------------------------------------------------------------------------
September 30, 2003 and 2002
- ---------------------------
Revenues
- --------
Revenues for the three and nine months ended September 30, 2003 decreased
$930,057 and $2,829,765, respectively, when compared to the same periods in
2002. These decreases in revenue were due to decreases in PVTV(TM) revenue of
approximately $286,000 and $1,468,000 for the three and nine month periods,
respectively, and decreases in camera revenue of approximately $644,000 and
$1,376,000 for the three and nine month periods respectively. The number of
camera and PVTV systems sold and the average selling price per system for the
three and nine month periods are as follows:
Number of Systems Sold Average Selling Price per System
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
PVTV SYSTEMS
Three month period 2 4 $ 348,000 $ 246,000
Nine month period 11 14 $ 309,000 $ 348,000
CAMERA SYSTEMS
Three month period 20 96 $ 16,500 $ 10,100
Nine month period 78 322 $ 15,700 $ 8,100
The decrease in PVTV revenue for the three month period ended September 30, 2003
was due to a decrease in unit sales, offset largely by an increase in the
average selling price per system due to the configuration of the systems sold.
For the nine-month period ended September 30, 2003, the decrease in revenue is
due to a lower average selling price per system combined with a decrease in the
number of systems sold.
Camera revenues declined for both the three and nine month periods due to a
notable decrease in the number of units sold, only partially offset by an
increase in the average selling price per system. The decline in unit sales is
due to the discontinuation of the Company's single chip product line in late
2002. The increase in average selling price per system is reflective of the
shift in sales mix to the higher priced three chip systems.
The Company's support and other service revenue remained relatively flat over
the three and nine month periods ended September 30, 2003 when compared to the
same periods in 2002. As a percentage of sales, support and other service
revenue represented 24% and 16%, respectively, of total revenue for the three
and nine month periods ended September 30, 2003. This compares to 14% and 10% of
total revenues for the three and nine month periods ended September 30, 2002.
The increase in support and other service revenue as a percent of sales from
2002 to 2003 is primarily due to a relatively stable recurring revenue stream
despite declining product sales for the periods.
Gross Margin
- ------------
For the three-month periods ended September 30, 2003 and 2002, gross margins
based on aggregate revenues, as a percentage of sales were 30.9% and 32.8%,
respectively. For the nine-month periods ended September 30, 2003 and 2002,
gross margins as a percentage of sales were 32.9% and 37.8%, respectively. The
decreases in margins are primarily due to the mix of products sold and the
absorption of relatively fixed overhead costs over a lower production and sales
volume in the first three quarters of 2003.
13
Research and Development Expenses
- ---------------------------------
The Company's research and development expenses for the three and nine month
periods ended September 30, 2003 increased $310,631 and $1,424,860 as compared
to the same periods in 2002. The increase on a quarterly basis is primarily due
to increased third party development fees and increased personnel costs offset
somewhat by a decrease in foundry expenses for the Company's wireless division.
The year to date increase is the result of increased wireless prototype chip
development expenses including foundry costs, increased personnel costs and
increased third party development fees, primarily related to the wireless
division. The personnel costs for the third quarter of 2003 include severance
payments related to a reduction in engineering staff in the Company's wireless
division. The reduction in staff was due to a shift in the Company's resources
from development to commercialization of its initial wireless products. The
Company expects its reductions in research and development costs to be somewhat
offset by increases in sales and marketing expenses over the next several
quarters.
Marketing and Selling Expenses
- ------------------------------
Marketing and selling expenses increased $107,495 and $260,214 for the three and
nine month periods ended September 30, 2003 as compared to the same periods in
2002. The increase for the three and nine months periods is primarily due to an
increase in sales personnel and related travel costs in the wireless division in
late 2002 and early 2003. These expenses are expected to increase in the future
as the Company further commercializes its wireless products.
General and Administrative Expenses
- -----------------------------------
For the three and nine month period ended September 30, 2003, general and
administrative expenses increased $218,471 and $491,451 over the same periods in
2002. These increases are largely due to increased insurance premiums and
professional fees. These expenses are expected to continue to be significant in
future periods.
Interest and Other Income
- -------------------------
Interest and other income consist of interest earned on the Company's
investments, as well as net gains on the sale of investments. Interest and other
income for the three and nine month period ended September 30, 2003 decreased
$175,171 and $357,791 from the same periods in 2002. This decrease is the result
of declining interest rates and continued use of cash and investments to fund
operations.
Loss and Loss per Share
- -----------------------
The Company's net loss increased by $1,226,836 or five cents per common share
from the three-month period ended September 30, 2003 to the same period in 2002.
This increase in net loss is largely due to the decreased revenues and gross
margin, and increases in research and development and general and administrative
expenses. On a year to date basis, the Company's net loss increased by
$3,909,553 or $0.20 per common share. This increase in net loss is primarily due
to decreased revenues from the video division, increased expenses in research
and development and marketing and selling expenses for the wireless division and
increases in general and administrative expenses overall.
Backlog
- -------
At September 30, 2003, the Company had a backlog of approximately $1,117,000
which consists primarily of PVTV systems and related services with expected
delivery dates during the fourth quarter of 2003 and first quarter of 2004. The
backlog at September 30, 2003 is not necessarily indicative of future quarters
performance.
Liquidity and Capital Resources
- -------------------------------
At September 30, 2003, the Company had working capital of $9.7 million, a
decrease of $9.4 million from $19.1 million at December 31, 2002. The decrease
is due to the continued use of cash and cash equivalents and short-term
investments to fund operations. The Company's principal source of liquidity
14
at September 30, 2003 consisted of approximately $7 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 which
increased working capital for the first quarter.
On November 12, 2003, the Company signed subscription agreements with
institutional and other investors for the sale of 2,310,714 shares of the
Company's common stock at $8.75 per share in a private placement transaction.
The Company will receive approximately $19,000,000 in net proceeds. These
proceeds, when received, together with the Company's current cash and
investments, are expected to be sufficient to fund operations for the next 12
months as well as on a longer term basis if necessary.
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. The Company intends to utilize its working capital to fund its
future business plans. Although initial sales of the Company's wireless products
commenced in the fourth quarter of 2003, these revenues together with the video
related revenues will not be sufficient to offset the expenses from the
continued investment in its video and wireless product development and sales and
marketing activities. Therefore, operating losses and negative cash flows will
continue through 2003 and possibly beyond.
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 may be required
to obtain additional funding through public or private sales of securities,
commercial borrowings and/or other financing techniques. In addition, the
Company currently has no outstanding long-term debt obligations. Management
believes certain discretionary spending and operating costs could be reduced if
working capital decreases significantly from the current level and additional
funding is not available. The effect of any cost cutting measures, however, may
not be immediately reflected in the financial condition of the Company, and may
have an adverse impact on the current business and near-term plans of the
Company. Failure to generate sufficient revenues, raise additional capital when
needed and/or reduce spending could have a material adverse effect on the
Company's ability to achieve its intended long-term business objectives.
ITEM 4. CONTROLS AND PROCEDURES.
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of September 30, 2003 was made under the supervision and with the
participation of the Company's management, including the chief executive officer
and chief financial officer. Based on that evaluation, they concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. During the most recently completed fiscal
quarter, there has been no significant change in the Company's internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES.
Sales of Unregistered Securities
- --------------------------------
Exemption
Consideration received and description from If option, warrant or
of underwriting or other discounts to registration convertible security, terms
Date of sale Title of security Number sold market price afforded to purchasers claimed of exercise or conversion
- ------------------------------------------------------------------------------------------------------------------------------------
7/03 - Options to 29,800 Option granted - no consideration 4(2) Expire five years from date
9/03 purchase common received by Company until exercise vested, options vest ratably
stock granted to over five years at exercise
employees prices ranging from $6.48 to
$7.89 per share
8/11/03 Options to 100,000 Option granted - no consideration 4(2) Expire ten years from date
purchase common received by Company until exercise vested, options vest ratably
stock granted to a over two years at an exercise
director price of $7.25 per share
9/2/03 Options to 500,000 Option granted - no consideration 4(2) Expire five years from date
purchase common received by Company until exercise vested, options vest ratably
stock granted to over five years at an exercise
an officer and price of $8.00 per share
director
9/3/03 Common Stock 138,158 $6.88 per share 4(2) N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable.
ITEM 5. OTHER INFORMATION. Not applicable.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
31.1 Section 302 Certification of Jeffrey L. Parker
31.2 Section 302 Certification of Cynthia Poehlman
32.1 Section 906 Certification
(b) REPORTS ON FORM 8-K. Form 8-K, dated September 4, 2003. Item 5- Other
events. Report of employment of William A. Hightower as President.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ParkerVision, Inc.
Registrant
November 14, 2003 By: /s/Jeffrey L. Parker
------------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
November 14, 2003 By: /s/Cynthia L. Poehlman
--------------------------
Cynthia L. Poehlman
Chief Accounting Officer
18