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 MARCH 31, 2004
( ) 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 May 5, 2004, 17,959,504 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
March 31,
2004 December 31,
ASSETS (unaudited) 2003
------ ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $13,788,062 $17,467,875
Short-term investments 2,694,007 3,008,427
Accounts receivable, net of allowance for doubtful
accounts of $68,330 at March 31, 2004 and $64,159
at December 31, 2003, respectively 1,132,587 988,849
Inventories, net 2,982,596 2,476,985
Prepaid expenses and other 2,214,643 2,366,792
----------- -----------
Total current assets 22,811,895 26,308,928
PROPERTY AND EQUIPMENT, net 4,581,135 4,860,261
OTHER ASSETS, net 11,191,891 11,313,621
----------- -----------
Total assets $38,584,921 $42,482,810
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
2004 December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 2003
------------------------------------ ------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 2,170,531 $ 693,820
Accrued expenses:
Salaries and wages 669,360 592,369
Warranty reserves 207,114 199,084
Professional fees 329,689 143,893
Other accrued expenses 146,691 228,057
Deferred revenue 1,026,173 1,226,929
------------- -------------
Total current liabilities 4,549,558 3,084,152
COMMITMENTS AND CONTINGENCIES
(Notes 2, 7 and 8)
------------- -------------
Total liabilities 4,549,558 3,084,152
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 17,959,504 issued and outstanding
at March 31, 2004 and December 31, 2003,
respectively 179,595 179,595
Warrants outstanding 16,807,505 16,807,505
Additional paid-in capital 118,048,964 118,048,964
Accumulated other comprehensive income 30,712 31,746
Accumulated deficit (101,031,413) (95,669,152)
------------- -------------
Total shareholders' equity 34,035,363 39,398,658
------------- -------------
Total liabilities and shareholders' equity $ 38,584,921 $ 42,482,810
============= =============
The accompanying notes are an integral part of these financial statements.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2004 2003
----------- -----------
Product revenue $ 1,003,479 $ 1,455,516
Royalty revenue 250,000 0
Support and other services revenue 222,685 304,654
----------- -----------
Net revenues 1,476,164 1,760,170
----------- -----------
Cost of goods sold - products 650,152 921,538
Cost of goods sold - support and other services 260,093 272,716
----------- -----------
Total cost of goods sold 910,245 1,194,254
----------- -----------
----------- -----------
Gross margin 565,919 565,916
----------- -----------
Research and development expenses 3,375,406 4,259,750
Marketing and selling expenses 760,988 871,990
General and administrative expenses 1,844,429 1,173,671
Other expense 635 0
----------- -----------
Total operating expenses, net 5,981,458 6,305,411
----------- -----------
Loss from operations $(5,415,539) $(5,739,495)
Interest and other income 53,278 181,402
----------- -----------
Net loss $(5,362,261) $(5,558,093)
=========== ===========
Basic and diluted net loss per common share $ (0.30) $ (0.39)
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,362,261) $ (5,558,093)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and patent amortization 796,117 743,365
Amortization of premium on investments 13,386 44,838
Provision for obsolete inventories 75,000 75,000
Stock compensation 0 393,096
Gain on sale of investments 0 (105,523)
Loss on disposal of equipment 635 0
Changes in certain operating assets and liabilities:
Accounts receivable, net (143,738) 523,623
Inventories (580,611) 164,115
Prepaid, interest receivable and other assets 131,891 120,589
Accounts payable and accrued expenses 1,666,162 879,091
Deferred revenue (200,756) (71,500)
------------ ------------
Total adjustments 1,758,086 2,766,694
------------ ------------
Net cash used in operating activities (3,604,175) (2,791,399)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments available for sale 0 (3,023,065)
Proceeds from maturity/sale of investments 300,000 7,779,984
Purchases of property and equipment (223,417) (341,897)
Payments for patent costs (152,221) (232,927)
------------ ------------
Net cash (used in) provided by investing activities (75,638) 4,182,095
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 5,064,915
------------ ------------
Net cash provided by financing activities 0 5,064,915
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(3,679,813) 6,455,611
CASH AND CASH EQUIVALENTS, beginning of period 17,467,875 1,087,033
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 13,788,062 $ 7,542,644
============ ============
The accompanying notes are an integral part of these financial statements.
5
PARKERVISION, INC.
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 three-month period ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
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, 2003. 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, 2003.
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 for the three-month periods ended March 31, 2004 and
2003 was $(1,034) and $(118,503), respectively. The Company's total
comprehensive loss for the three-month periods ended March 31, 2004 and
2003 was $(5,363,295) and $(5,676,596), respectively.
CONSOLIDATED STATEMENTS OF CASH FLOWS. The Company paid no cash for income
taxes or interest for the three-month periods ended March 31, 2004 and
2003. For the three-month period ended March 31, 2003, the Company issued
restricted stock as compensation to employees with an aggregate fair value
of $130,000.
ROYALTY REVENUE. In the first quarter of 2004, the Company's wireless
division recognized a one-time previously deferred royalty payment upon
termination of a licensing agreement in the amount of $250,000.
WARRANTY COSTS
For wireless products, 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.
A reconciliation of the changes in the aggregate product warranty
liability for the three months ended March 31, 2004 and the year ended
December 31, 2003 is as follows:
6
Warranty Reserve
Debit (Credit)
------------------------
December 31,
March 31, 2003
2004 (unaudited)
--------- ---------
Balance at the beginning of the period $(199,084) $(248,230)
Accruals for warranties issued during the period (10,291) (55,729)
Accruals related to pre-existing warranties (including
changes in estimates) 0 0
Settlements made (in cash or in kind) during the period 2,261 104,875
--------- ---------
Balance at the end of the period $(207,114) $(199,084)
========= =========
The Company offers extended service and support contracts on its PVTV
automated production systems. A reconciliation of the changes in the
aggregate deferred revenue from extended service contracts for the three
months ended March 31, 2004 and for the year ended December 31, 2003 is as
follows:
Deferred Revenue from Extended
Service Contracts
Debit (Credit)
------------------------------
December 31,
March 31, 2003
2004 (unaudited)
--------- ---------
Balance at the beginning of the year $(561,584) $(383,704)
Accruals for contracts issued during the year (113,300) (737,617)
Revenue recognized during the year 143,452 559,737
--------- ---------
Balance at the end of the year $(531,432) $(561,584)
========= =========
The remaining deferred revenue in the Consolidated Balance Sheets relates
to deposits received from customers for orders of PVTV systems and related
training and installation services pertaining to those systems.
ACCOUNTING FOR STOCK BASED COMPENSATION. At March 31, 2004, 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.
For employee stock option grants, no stock-based employee compensation
cost is reflected in the Consolidated Statements of Operations, 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.
7
Three months ended
---------------------------
March 31, March 31,
2004 2003
----------- -----------
Net Loss, as reported $(5,362,261) $(5,558,093)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (2,885,245) (3,606,019)
----------- -----------
Pro Forma net loss (8,247,506) (9,164,112)
=========== ===========
Basic Net Loss Per Share: As Reported $ (.30) $ (.39)
=========== ===========
Pro Forma $ (.46) $ (.65)
=========== ===========
2. PENDING SALE OF THE VIDEO BUSINESS UNIT ASSETS
----------------------------------------------
On February 25, 2004, the Company entered into an asset purchase agreement
("Asset Agreement") and various ancillary agreements with Thomson
Broadcast & Media Solutions, Inc. ("Thomson") and Thomson Licensing, SA
("Thomson Licensing" and, together with Thomson, the "Purchasers") for the
sale of all of the assets of the Company's video division, with certain
limited exceptions. The transaction is expected to close in the second
quarter of 2004, assuming the required approval of the Company's
stockholders is obtained and other required closing conditions are
satisfied. Under the Asset Agreement and the various ancillary agreements,
the Company will sell to the Purchasers the business and related assets of
its video division, excluding certain contracts, accounts receivable and
other assets. The assets to be sold are those used in connection with and
relating to the PVTV and CameraMan products and services, including
patents, patent applications, tradenames, trademarks and other
intellectual property, inventory, specified design, development and
manufacturing equipment, and outstanding contracts for products and
services. The Company is retaining its accounts receivable and certain
other specified contracts and other assets.
The purchase price of the assets is $12,500,000, subject to adjustment
upon verification of the actual value of the certain tangible or current
assets that will be transferred, minus certain liabilities (warranty
reserves, deferred income and amounts required to satisfy certain assumed
or other contractual liabilities). The upward adjustment to the purchase
price, if any, cannot exceed $2,750,000. The Company currently believes
that the upward adjustment to the purchase price will be approximately
$1,500,000. The actual amount of the adjustment will be determined within
45 days after the closing and will be paid when the final valuation is
agreed upon. A portion of the purchase price equal to $1,250,000 will be
held by the Purchasers until the first anniversary of the closing as
security against the Company's obligations to indemnify the Purchasers.
This amount will earn interest until paid. The Company expects to realize
an approximate gain of $11.8 million on the sale of the assets of the
video division.
The video division operating results, which represent substantially all of
the Company's revenues and margins to date, will be reported as
discontinued operations in the period in which the required shareholder
approval of the sale is obtained, currently anticipated to be the second
quarter of 2004. The operations of the video division are disclosed in
Note 6; however these results may not be directly indicative of the
amounts to be reported as future discontinued operations as there are
certain allocated costs included in these divisional results of operations
which will be continue to be incurred by the Company subsequent to the
sale of the video division.
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 March 31, 2004 and 2003 is 17,959,504 and 14,076,966 respectively.
The total number of options and warrants to purchase 7,078,727 and
6,715,095 shares of common stock that were outstanding at March 31, 2004
and 2003, 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:
December 31,
March 31, 2003
2004 (audited)
----------- -----------
Purchased materials $ 2,094,030 $ 1,869,542
Work in process 388,096 185,041
Finished goods 474,088 404,765
Spare parts and demonstration inventory 1,175,141 1,207,097
----------- -----------
4,131,355 3,666,445
Less allowance for inventory obsolescence (1,148,759) (1,189,460)
----------- -----------
$ 2,982,596 $ 2,476,985
=========== ===========
5. OTHER ASSETS:
-------------
Other assets consists of the following:
March 31, 2004
----------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,940,048 $ (2,799,904) $ 8,140,144
Prepaid services 1,600,000 (800,000) 800,000
Prepaid licensing fees 2,255,000 (548,500) 1,706,500
Deposits and other 545,247 0 545,247
------------ ------------ ------------
$ 15,340,295 $ (4,148,404) $ 11,191,891
============ ============ ============
December 31, 2003
(audited)
----------------------------------------------
Gross
Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,787,826 $ (2,638,862) $ 8,148,964
Prepaid services 1,600,000 (600,000) 1,000,000
Prepaid licensing fees 2,030,000 (415,333) 1,614,667
Other intangible assets 364,830 (364,830) 0
Deposits and other 549,990 0 549,990
------------ ------------ ------------
$ 15,332,646 $ (4,019,025) $ 11,313,621
============ ============ ============
9
6. BUSINESS SEGMENT INFORMATION
----------------------------
The Company's segments include the Video Division and the Wireless
Division. Certain reclassifications have been made to the 2003 segment
results in order to conform with the 2004 presentation. Segment results are
as follows (in thousands):
Three months ended
----------------------
March 31, March 31,
2004 2003
-------- --------
NET REVENUES:
Video Division $ 1,158 $ 1,760
Wireless Division 318 0
-------- --------
Total net sales $ 1,476 $ 1,760
======== ========
LOSS FROM OPERATIONS:
Video Division $ (1,389) $ (825)
Wireless Division (3,299) (4,235)
Corporate (728) (679)
-------- --------
Total loss from operations $ (5,416) $ (5,739)
======== ========
DEPRECIATION:
Video Division $ 95 $ 114
Wireless Division 373 339
Corporate 34 46
-------- --------
Total depreciation $ 502 $ 499
======== ========
AMORTIZATION OF IDENTIFIABLE
INTANGIBLES AND OTHER ASSETS:
Video Division $ 43 $ 33
Wireless Division 251 211
-------- --------
Total amortization $ 294 $ 244
======== ========
CAPITAL EXPENDITURES:
Video Division $ 43 $ 58
Wireless Division 180 284
Corporate 0 0
-------- --------
Total capital expenditures $ 223 $ 342
======== ========
December 31,
March 31, 2003
2004 (unaudited)
-------- -----------
ASSETS:
Video Division $ 4,989 $ 4,662
Wireless Division 13,650 13,469
Corporate 19,946 24,352
-------- --------
Total assets $ 38,585 $ 42,483
======== ========
10
Corporate assets consist of the following:
December 31,
March 31, 2003
2004 (unaudited)
-------- -----------
Cash and investments $16,482 $20,476
Prepaid expenses and other 1,597 1,775
Property and equipment, net 561 595
Other assets 1,306 1,506
------- -------
Total assets $19,946 $24,352
======= =======
7. STOCK OPTIONS
-------------
For the three-month period ended March 31, 2004, the Company granted stock
options under the 2000 Performance Equity Plan (the "2000 Plan") to its
non-employee directors to purchase an aggregate of 45,000 shares of its
common stock at an exercise price of $9.06 per share. These share options
are immediately vested and expire ten years from the date of the grant.
The Company grants stock options to employees in connection with hiring and
retention of employees. For the three-month period ended March 31, 2004,
the Company granted share options to an employee to purchase 7,500 shares
of its common stock at an exercise price of $7.15 per share. The options
vest ratably over five years and expire five years from the date vested.
As of March 31, 2004, options to purchase 1,545,090 shares of common stock
were available for future grants under the 2000 Plan.
8. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
- --------------------------
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result",
"management expects" or "Company expects", "will continue", "is anticipated",
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on such
forward-looking statements, each of which speaks only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected, including the timely development and acceptance of new
products, sources of supply and concentration of customers. The Company has no
obligation to publicly release the results of any revisions, which may be made
to any forward-looking statements to reflect, anticipated events or
circumstances occurring after the date of such statements.
Results of Operations for Each of the Three-Month Periods Ended March 31, 2004
- ------------------------------------------------------------------------------
and 2003
- --------
The Company has entered into an agreement to sell the video division, which is
expected to close in the second quarter of 2004. The discussion below reflects
the historical performance of the division and, to some extent, its continued
11
operations until the sale is completed, but does not reflect the Company's
operations as affected by the consummation of the sale.
Revenues
- --------
Revenues for the three months ended March 31, 2004 were $1,476,000, as compared
to revenues of $1,760,000 for the same period in 2003. The decrease of
approximately $284,000 was due to a decrease in video division revenues of
approximately $602,000, offset by $318,000 of wireless division revenues.
Essentially all of the Company's revenues to date have been generated by is
video division. In the first quarter of 2004, the Company's wireless division
recognized initial sales of its wireless end-user products, and a one-time
previously deferred royalty payment upon termination of a licensing agreement.
Video Division
- --------------
Video division revenues by major product lines, including service and support
related to those products, as a percentage of total video division revenues for
the three-month periods ended March 31, 2004 and 2003 were as follows:
Three Months Ended
------------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
PVTV systems 63% 62%
Camera systems 18% 21%
Support and other services 19% 17%
The number of PVTV and stand-alone CameraMan systems sold and the average
selling price per system for the three-month periods were as follows:
Average Selling Price
Number of Systems Sold per System
---------------------- -----------------------
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
--------- --------- --------- ---------
PVTV Systems 2 4 $216,000 $271,000
Camera Systems 15 21 $ 13,900 $ 17,800
In addition to the system sales, the Company sold approximately $295,000 in PVTV
add-on cameras, components and backup modules to existing installations during
the three months ended March 31, 2004.
The $602,000 decrease in video division revenues was due to a decrease in both
product and support revenues. PVTV product revenues decreased approximately
$356,000 due to a decrease in the volume of units sold and a decline in the
average selling price per system. The decline in the number of PVTV systems sold
is believed to be the result of uncertainty among the broadcasters as to the
Company's pending sale of the video division assets to Thomson as discussed in
Note 2 to the Consolidated Financial Statements. The decline in average selling
price was due to the mix of product sold as well as an overall price reduction
on certain PVTV products initiated in the second quarter of 2003.
Camera revenues declined by approximately $164,000 due to a decline in the
number of units sold, and a decrease in the average selling price per system.
The decrease in the average selling price per system was due to the introduction
of a new lower priced three-chip camera system in late 2003.
For the three month period ended March 31, 2004, the Company's service and
support revenue decreased by approximately $82,000 as compared to the same
period in 2003. This decrease was due to the timing of training and other
services in relation to PVTV system deliveries. The Company's recurring support
revenue from PVTV support contracts remained relatively stable during the
three-month periods ended March 31, 2004 and 2003.
12
Wireless Division
- -----------------
In the fourth quarter of 2003, the Company's wireless division began selling its
first D2D-based products, wireless local area networking cards for use in laptop
computers and wireless USB adaptors for both laptop and desktop computers. The
Company added wireless four-port routers to its initial product line during the
first quarter of 2004. For the three month period ended March 31, 2004, revenues
of approximately $68,200 were recognized from sales of wireless products. These
sales were generated through the Company's website and through TigerDirect.com,
an Internet-based retailer specializing in high tech electronic merchandise. The
average selling price of both the wireless local area networking card and the
USB adaptor is approximately $76 and the average selling price of the wireless
four-port router is approximately $200.
For sales through TigerDirect.com, the Company recognizes revenue on a
sell-through basis, that is, when the product is sold through to the end-user.
This is determined based on information received from TigerDirect.com. In
addition, the Company currently offers a 30-day money back guarantee on its
wireless products. Since the Company does not have sufficient history with sales
of this nature to establish an estimate of expected returns, it has deferred
100% of wireless product sales to the end-user until expiration of the 30-day
guarantee period. At March 31, 2004, the Company had deferred revenue from sales
of wireless products of approximately $36,900.
The Company has entered into outside public relations and manufacturer
representative arrangements for introduction of the Company's products to retail
storefronts. The Company is exploring additional channels of marketing and
commercial product distribution including value-added reseller relationships.
For the three-month period ended March 31, 2004, the Company recognized a
one-time royalty revenue of $250,000 from the termination of a 1999 licensing
agreement with Symbol Technologies, Inc. This amount, which represents prepaid
royalties under the agreement, was previously included in deferred revenue.
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, and
the ability of the Company to build brand recognition and distribution. 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 three-month periods ended March 31, 2004 and 2003, gross margins based
on aggregate revenues as a percentage of sales were 38.3% and 32.2%,
respectively.
The gross margins for products and services by division for the three-month
periods were as follows:
Video Division
- --------------
March 31, 2004 March 31, 2003
-------------------- -------------------
$ % $ %
--------- ------ --------- ------
Products $ 333,200 35.6% $ 534,000 36.7%
Services (37,400) (16.8)% 31,900 10.5%
--------- ------ --------- ------
Total $ 295,800 25.5% $ 565,900 32.2%
========= ====== ========= ======
13
The decrease in video product margin from period to period was primarily due to
the mix of products sold and the absorption of inventory obsolescence reserves
and fixed overhead over a lower production volume in the first quarter of 2004.
The decline in service margins was primarily a result of a decline in training
and other service revenue due to the decrease in new PVTV product sales late in
2003 and in the first quarter of 2004. The costs related to this service revenue
are relatively fixed over the short term due to the time and cost required to
recruit and train PVTV support personnel.
Wireless Division
- -----------------
March 31, 2004 March 31, 2003
------------------- -----------------
$ % $ %
-------- ------- ------- -------
Products $ 20,100 29.5% N/A N/A
Royalties 250,000 100.0% N/A N/A
-------- ------- ------- -------
Total $270,100 84.9% N/A N/A
======== ======= ======= =======
The Company initiated sales of its wireless products in the fourth quarter of
2003. Management anticipates margins from wireless product sales will improve as
production volumes increase. The margin recognized on royalty revenues was due
to the recognition of a one-time, previously deferred prepaid royalty in
connection with the termination of a licensing agreement.
The Company strives to improve its gross margin through product pricing, labor
efficiencies, and product design. There can be no assurance, however that gross
margins in 2004 will improve over, or remain stable with, the gross margins
attained in the first quarter of 2004. Gross margins for the remainder of 2004
may be negatively impacted by many factors, including fluctuating component
costs, overhead absorption, and one-time production costs associated with new
product introductions in the wireless division.
Research and Development Expenses
- ---------------------------------
The Company's research and development expenses for the three-month period ended
March 31, 2004 were $3,375,400 as compared to $4,259,800 for the same period in
2003. The decrease of approximately $884,400 was primarily due to the Company's
ability to obtain access to certain critical prototype components which were
previously being developed by the Company. The elimination of this development
program resulted in a reduction in wireless engineering staff late in the third
quarter of 2003, as well as a reduction in certain third-party development fees.
In addition, the Company's wireless prototype foundry expenses decreased from
the first quarter of 2003 to the same period in 2004, largely due to timing of
prototype foundry runs and related foundry costs.
Marketing and Selling Expenses
- ------------------------------
Marketing and selling expenses for the three-month period ended March 31, 2004
were $761,000 as compared to $872,000 for the same period in 2003. The decrease
of approximately $111,000 was primarily due to a reduction in video division
sales personnel in late 2003 and decreases in sales commissions, trade show and
travel expenses in the first quarter of 2004 in the video division. These
decreases were somewhat offset by increases in advertising expenses and outside
consulting fees in the wireless division to promote the sales of its wireless
products.
General and Administrative Expenses
- -----------------------------------
For the three-month period ended March 31, 2004, general and administrative
expenses were $1,844,400 compared to $1,173,700 for the same period in 2003. The
increase of approximately $670,700 was primarily due to professional fees
incurred in connection with the pending sale of the video division assets as
well as increases in corporate outside professional fees, offset somewhat by
decreases in corporate insurance costs.
14
Interest and Other Income
- -------------------------
Interest and other income consists of interest earned on the Company's
investments, and net gains recognized on the sale of investments. Interest and
other income for the three-month period ended March 31, 2004 was $53,300 as
compared to $181,400 for the same period in 2003. The decrease of approximately
$128,100 was primarily due to the continued use of cash and investments to fund
operations and a decline in interest rates due to a change in the mix of the
Company's investment portfolio.
Loss and Loss per Share
- -----------------------
The Company's net loss decreased from approximately $5,558,000 or $0.39 per
common share for the three month period ended March 31, 2003 to approximately
$5,362,300 or $0.30 per common share for the same period in 2004, representing a
net loss decrease of approximately $195,800 or $0.09 per common share.
The net losses by reportable segment are as follows (in thousands):
Three months ended
------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
Wireless division operating loss $(3,299) $(4,235)
Video division operating loss (1,389) (825)
Corporate expense (727) (679)
Interest income 53 181
------- -------
Total net loss $(5,362) $(5,558)
======= =======
The $936,000 decrease in the wireless division's operating losses for the three
month period ended March 31, 2004 compared to the same period in 2003 was due to
decreases in research and development expenses, offset by margins generated from
the sale of wireless products and the recognition of wireless royalty revenue in
the first quarter of 2004. The $564,000 increase in the video division's
operating losses for three month period ended March 31, 2004 compared to the
same period in 2003 was primarily due to a reduction in revenues and an increase
in general and administrative expenses related to the sale of the video division
assets, offset by reductions in sales and marketing expenses. The $48,000
increase in corporate expenses was due to an increase in outside professional
fees offset somewhat by reductions in insurance costs.
Backlog
- -------
At March 31, 2004, the Company had a backlog of approximately $1,202,000 which
primarily represents PVTV products and related services. As a result of the
pending sale of the video division assets, which is expected to close during the
second quarter of 2004, the Company does not anticipate recognizing substantial
revenues from its video backlog in the second quarter of 2004.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2004, the Company had working capital of approximately $18.3
million including approximately $16.5 million in cash, cash equivalents and
short-term investments. This represents a decrease of approximately $4.9 million
from working capital of $23.2 million at December 31, 2003. This decrease is due
to the continued use of cash and cash equivalents and investments to fund
operations.
The increase in accounts payable from December 31, 2003 to March 31, 2004 was
due to timing differences pertaining to receipt and payment of various invoices.
No specific vendor was responsible for the increase in accounts payable.
15
The Company's future business plans call for continued investment in sales,
marketing and product development principally related to its wireless division.
The Company's ability to increase wireless product revenues will largely depend
upon the rate at which the Company is able to secure additional distribution
channels, increase brand recognition and customer demand for its products and
increase production volumes sufficiently to meet such demand. Although
management expects increases in revenues from sales of its wireless products
during 2004, the Company does not anticipate that overall revenues for 2004 will
be sufficient to offset the expenses of its continued operations. Therefore,
management expects operating losses and negative cash flows from operations to
continue in 2004 and possibly beyond. The Company intends to utilize its working
capital to fund its future business plans. The Company believes it currently has
sufficient capital to fund its business plan for 2004. The Company's principal
source of liquidity at March 31, 2004 consisted of approximately $16.5 million
in cash, cash equivalents and short-term investments. The Company anticipates
that its working capital will be augmented by the net proceeds from the sale of
the video division assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 4. CONTROLS AND PROCEDURES.
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of March 31, 2004 was made under the supervision and with the
participation of the Company's management, including the chief executive officer
and chief accounting officer. Based on that evaluation, they concluded that the
Company's disclosure controls and procedures are effective as of the end of the
period covered by this report to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. As of the end of the period covered by this report, 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.
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.
16
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Sales of Unregistered Securities
- --------------------------------
Consideration received and Exemption If option, warrant or
description of underwriting or from convertible security,
Date of Title of Number other discounts to market price registration terms of exercise or
sale security sold afforded to purchasers claimed conversion
- ------------------------------------------------------------------------------------------------------------------
1/15/04 Options to 45,000 Options granted - no 4(2) Options are fully vested
purchase consideration received by at an exercise price of
common stock Company until exercise $9.06 per share and
to three expire ten years from
directors the date of the grant
pursuant to
the 2000 Plan
2/17/04 Options to 7,500 Options granted - no 4(2) Expire five years from
purchase consideration received by the date vested, options
common stock Company until exercise vest ratably over five
granted to years at an exercise
an employee price of $7.15 per share
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.
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 L. Poehlman
32.1 Section 906 Certification
(b) REPORTS ON FORM 8-K.
1. Form 8-K, dated February 25, 2004. Item 5 - Other
events. Report of ParkerVision, Inc. entering into an
asset purchase agreement and various ancillary
agreements with Thomson Broadcast & Media Solutions,
Inc. and Thomson Licensing, SA for the sale of certain
designated assets of the Company's video division.
2. Form 8-K, dated March 11, 2004. Item 5 - Other events.
Report of earnings release for the 2003 fourth quarter
and year-end results.
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
May 7, 2004 By: /s/Jeffrey L. Parker
--------------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
May 7, 2004 By: /s/Cynthia L. Poehlman
--------------------------
Cynthia L. Poehlman
Chief Accounting Officer
18