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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, 2005
|_| 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, 2005, 20,900,374 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, 2005 December 31,
(unaudited) 2004
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 21,745,181 $ 6,434,901
Short-term investments available for sale 1,052,279 1,363,571
Accounts receivable, net of allowance for doubtful
accounts of $42,089 and $19,164 at March 31, 2005 and
December 31, 2004, respectively 199,516 310,400
Interest and other receivables 1,247,519 1,277,497
Inventories, net 2,714,059 2,625,763
Prepaid expenses and other current assets 1,726,368 1,781,595
-------------- --------------
Total current assets 28,684,922 13,793,727
PROPERTY AND EQUIPMENT, net 3,109,878 3,372,894
OTHER ASSETS, net 10,631,172 10,914,017
-------------- --------------
Total assets 42,425,972 28,080,638
============== ==============
CURRENT LIABILITIES:
Accounts payable 712,632 857,954
Accrued expenses:
Salaries and wages 923,690 1,130,860
Professional fees 193,227 202,787
Purchase commitments 194,000 194,000
Other accrued expenses 321,244 529,783
Deferred revenue 594,480 407,403
-------------- --------------
Total current liabilities 2,939,273 3,322,787
-------------- --------------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6, 8 and 9) -- --
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized, 20,900,374 and
18,006,324 shares issued and outstanding at March 31, 2005 and December
31, 2004, respectively 209,004 180,063
Warrants outstanding 17,693,482 14,573,705
Additional paid-in capital 137,576,291 120,488,205
Accumulated other comprehensive loss (4,142) (427)
Accumulated deficit (115,987,936) (110,483,695)
-------------- --------------
Total shareholders' equity 39,486,699 24,757,851
-------------- --------------
Total liabilities and shareholders' equity $ 42,425,972 $ 28,080,638
============== ==============
The accompanying notes are an integral part of these financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three months ended March 31,
----------------------------
2005 2004
------------ ------------
Product revenue $ 171,982 $ 45,775
Royalty revenue 0 250,000
------------ ------------
Net revenues 171,982 295,775
Cost of goods sold 261,724 48,085
------------ ------------
Gross margin (89,742) 247,690
------------ ------------
Research and development expenses 2,921,674 2,976,668
Marketing and selling expenses 989,970 262,342
General and administrative expenses 1,536,446 1,034,581
------------ ------------
Total operating expenses 5,448,090 4,273,591
------------ ------------
Investment income 33,591 53,278
------------ ------------
Loss from continuing operations (5,504,241) (3,972,623)
Loss from discontinued operations 0 (1,389,638)
------------ ------------
Net loss (5,504,241) (5,362,261)
Unrealized loss on securities (3,715) (1,034)
------------ ------------
Comprehensive loss $ (5,507,956) $ (5,363,295)
============ ============
Basic and diluted net loss per common share
Continuing operations $ (0.30) $ (0.22)
Discontinued operations 0.00 (0.08)
------------ ------------
Total $ (0.30) $ (0.30)
============ ============
The accompanying notes are an integral part of these financial statements.
3
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,504,241) $ (5,362,261)
------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 801,311 796,117
Amortization of discounts on investments 7,577 13,386
Provision for obsolete inventories 67,940 75,000
Stock compensation 200,000 200,000
Loss on disposal of equipment 8,707 635
Changes in operating assets and liabilities:
Accounts receivable, net 110,884 (143,738)
Inventories (156,236) (580,611)
Prepaid, interest receivable and other assets 66,885 (68,109)
Accounts payable and accrued expenses (570,591) 1,666,162
Deferred revenue 187,077 (200,756)
------------ ------------
Total adjustments 723,554 1,758,086
------------ ------------
Net cash used in operating activities (4,780,687) (3,604,175)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investments 300,000 300,000
Purchases of property and equipment (177,377) (223,417)
Payments for patent costs (268,460) (152,221)
------------ ------------
Net cash used in investing activities (145,837) (75,638)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants, net 20,236,804 0
------------ ------------
Net cash provided by financing activities 20,236,804 0
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,310,280 (3,679,813)
CASH AND CASH EQUIVALENTS, beginning of period 6,434,901 17,467,875
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 21,745,181 $ 13,788,062
============ ============
The accompanying notes are an integral part of these financial statements.
4
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of
ParkerVision, Inc. and subsidiary (the "Company", or "ParkerVision") have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. All normal and recurring adjustments
which, in the opinion of management, are necessary for a fair statement of
the financial condition and results of operations have been included.
Operating results for the three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2005.
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, 2004. 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, 2004.
Consolidated Statements of Cash Flows The Company paid no cash for income
taxes or interest for the three periods ended March 31, 2005 and 2004.
Unrealized losses on investments for the three month periods ended March
31, 2005 and 2004 were $3,715 and $1,034, respectively. In connection with
the private placement of 2,880,000 shares of the Company's common stock on
March 10, 2005, the Company issued warrants to purchase 720,000 shares of
common stock. These warrants were recorded their estimated fair value of
approximately $3.1 million. (see Note 6).
Warranty Costs The Company warrants its products against defects in
workmanship and materials for approximately one year. Estimated costs
related to warranties are accrued at the time of revenue recognition and
are included in cost of sales. The warranty obligations related to the
Company's PVTV and camera products were transferred to Thomson upon sale
of the assets of the video business unit (see Note 8). For the three-month
period ended March 31, 2005, warranty expenses were $1,363. For the
three-month period ended March 31, 2004, warranty expenses from
discontinued operations were $10,291.
A reconciliation of the changes in the aggregate product warranty
liability for the three-month periods ended March 31, 2005 and 2004 are as
follows:
Warranty Reserve
Debit (Credit)
----------------------------
March 31, March 31,
2005 2004
------------ ------------
Balance at the beginning of the period $ (4,853) $ (199,084)
Accruals for warranties issued during the period (1,363) (10,291)
Settlements made (in cash or in kind) during the period
0 2,261
------------ ------------
Balance at the end of the period $ (6,216) $ (207,114)
============ ============
The extended service and support contract obligations related to the
Company's PVTV products were transferred to Thomson upon sale of the
assets of the video business unit (see Note 8). The Company no longer
provides extended service and support contracts on its current products. A
reconciliation of the changes in the aggregate deferred revenue from
5
extended service contracts for the three-month period ended March 31, 2004
is as follows:
Deferred Revenue from
Extended Service Contracts
------------------------------
March 31,
2004
----------
Balance at the beginning of the period $ (561,584)
Accruals for contracts issued during the period (113,300)
Revenue recognized during the period 143,452
----------
Balance at the end of the period $ (531,432)
==========
Revenue Recognition. Revenue from products sales is generally recognized
at the time the product is shipped, provided that persuasive evidence of
an arrangement exists, title and risk of loss has transferred to the
customer, the sales price is fixed or determinable and collection of the
receivable is reasonably assured. The Company sells its products primarily
through retail distribution channels, with limited sales direct to end
users through its own website and direct value added resellers. Retail
distributors are generally given business terms that allow for the return
of unsold inventory. In addition, the Company offers a 30-day money back
guarantee on its products. With regard to sales through a distribution
channel where the right to return unsold product exists, the Company
recognizes revenue on a sell-through method utilizing information provided
by the distribution channel. At March 31, 2005 and December 31, 2004, the
Company had deferred revenue from product sales in the distribution
channel of $594,480 and $407,403, respectively. In addition, since the
Company does not have sufficient history with sales of this nature to
establish an estimate of expected returns, it has recorded a return
reserve in the amount of 100% of product sales within the 30-day guarantee
period.
In addition to the reserve for sales returns, gross revenue is reduced for
price protection programs, customer rebates and cooperative marketing
expenses deemed to be sales incentives to derive net revenue. For the
three-month periods ended March 31, 2005 and 2004, net revenue was reduced
for cooperative marketing costs in the amount of $29,267 and $24,500,
respectively.
Accounting for Stock-Based Compensation.
At March 31, 2005, the Company has two stock-based employee compensation
plans. 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. For employee stock option
grants, no stock-based employee compensation cost is reflected in net
loss, 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.
Three months ended
----------------------------
March 31, March 31,
2005 2004
------------ ------------
Net loss, as reported $ (5,504,241) $ (5,362,261)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (1,613,836) (2,885,245)
------------ ------------
Pro forma net loss (7,118,077) (8,247,506)
============ ============
Basic and diluted net loss per common share: As reported $ (.30) $ (.30)
============ ============
Pro forma $ (.38) (.46)
============ ============
6
Recent Accounting Pronouncements
On December 16, 2004 the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS 123(R)
revises FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS
123) and requires companies to expense the fair value of employee stock
options and other forms of stock-based compensation. In addition to revising
FAS 123, FAS 123(R) supersedes Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and amends FASB
Statement No. 95, Statement of Cash Flows (FAS 95). The provisions of FAS
123(R) apply to awards that are granted, modified, or settled at the
beginning of the interim or annual reporting period that starts after
December 31, 2005. The Company will adopt FAS 123(R) effective January 1,
2006 on a modified prospective basis without restatement of prior years. The
Company has determined that FAS 123(R) will have a substantial impact on the
financial statements of the Company due to its requirement to expense the
fair value of employee stock options and other forms of stock-based
compensation in the Company's Consolidated Statement of Operations, thereby
decreasing income and earnings per share. The Company is currently
evaluating and considering the financial accounting, income tax, and
internal control implications of FAS 123(R) and the effect that the adoption
of this statement may have on its future compensation practices and its
consolidated results of operations and financial position.
Reclassifications
Certain reclassifications have been made to the 2004 consolidated financial
statements in order to conform to the 2005 presentation.
2. 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, 2005 and 2004 is 18,552,594 and 17,959,504, respectively.
The total number of options and warrants to purchase 7,422,340 and
7,077,127 shares of common stock that were outstanding at March 31, 2005
and 2004, respectively, were excluded from the computation of diluted
earnings per share as the effect of these options and warrants would have
been anti-dilutive due the net loss for the periods.
3. INVENTORIES:
Inventories consist of the following:
March 31, 2005 December 31, 2004
----------------- -------------------
Purchased materials $1,767,970 $ 1,837,364
Work in process 99,704 165,709
Finished goods 1,123,070 831,435
----------------- -------------------
2,990,744 2,834,508
Less allowance for inventory obsolescence (276,685) (208,745)
----------------- -------------------
$2,714,059 $ 2,625,763
================= ===================
7
4. OTHER ASSETS:
Other assets consists of the following:
March 31, 2005
----------------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------------- ------------------ -------------------
Patents and copyrights $10,754,625 $(2,597,590) $ 8,157,035
Prepaid licensing fees 2,405,000 (1,193,667) 1,211,333
Other intangible assets 841,140 (186,920) 654,220
Prepaid services, non
current portion 200,000 (200,000) 0
Deposits and other 608,584 0 608,584
------------------- ------------------ -------------------
$14,809,349 $(4,178,177) $10,631,172
=================== ================== ===================
December 31, 2004
----------------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------------- ------------------ -------------------
Patents and copyrights $10,486,165 $(2,462,477) $ 8,023,688
Prepaid licensing fees 2,405,000 (1,029,250) 1,375,750
Other intangible assets 841,140 (116,825) 724,315
Prepaid services, non
current portion 200,000 0 200,000
Deposits and other 590,264 0 590,264
------------------- ------------------ -------------------
$14,522,569 $(3,608,552) $10,914,017
=================== ================== ===================
5. STOCK OPTIONS
For the three months ended March 31, 2005 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 71,000 shares
of its common stock at exercise prices ranging from $6.79 to $11.86 per
share. The options granted vest ratably over five years and expire five
years from the date they become vested.
As of March 31, 2005 options to purchase 1,398,190 shares of common stock
were available for future grants under the 2000 Plan.
6. STOCK AUTHORIZATION AND ISSUANCE
On March 14, 2005, ParkerVision consummated the sale of an aggregate of
2,880,000 shares of common stock and warrants to purchase an additional
720,000 shares of common stock to a limited number of institutional and
other investors (the "Investors") in a private placement transaction
8
pursuant to offering exemptions under the Securities Act of 1933 for net
proceeds of $20.2 million. The shares represent 14% of the Company's
outstanding common stock on an after-issued basis. Each warrant had an
estimated fair value of $6.29. The fair value was estimated as of the date
of the transaction using the Black-Scholes option pricing model with the
following assumptions: risk free interest rate of 4.15%, no expected
dividend yield, expected life of five years and expected volatility of
80.59%. The warrants were recorded in equity at their relative fair value
based on an allocation of gross proceeds obtained. The warrants are
immediately exercisable at an exercise price of $9.00 per share and expire
on March 10, 2010.
Under the terms of the private placement transaction, the Company is
required to file and maintain an effective registration statement for the
shares of common stock, including the shares underlying the warrants. In
the event that the Company's registration statement is not effective by
June 8, 2005, or the registration statement becomes effective and
subsequently ceases to be effective for a period of thirty consecutive
days, or greater than sixty non consecutive days in a twelve month period,
the Company is obligated to pay liquidated damages to the Investors. The
liquidated damages are calculated as 1% of the purchase price paid by the
Investors for each thirty day period in which the registration statement
in not in effect, for a maximum of 10% of the purchase price paid, or
$2,160,000. In the event that the registration statement becomes effective
and then subsequently ceases to be effective, the liquidated damages are
only payable relative to the shares of common stock still held by the
Investors.
7. WARRANTS
In accordance with EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock",
the warrants issued in conjunction with the private placement on March 14,
2005 (Note 6) were classified as equity on the issuance date.
8. DISCONTINUED OPERATIONS
On May 14, 2004, the Company completed the sale of certain designated
assets of its video division to Thomson Broadcast & Media Solutions, Inc.
and Thomson Licensing, SA (collectively referred to as "Thomson"). The
assets sold included the PVTV and CameraMan products, services, patents,
patent applications, tradenames, trademarks and other intellectual
property, inventory, specified design, development and manufacturing
equipment, and obligations under outstanding contracts for products and
services and other assets. Certain specified assets related to the video
division, such as accounts receivable and certain contracts, were excluded
from the transaction. Thomson extended offers to and received acceptances
from thirty-one of the persons employed in connection with the video
division who transferred employment effective May 14, 2004.
The sales price of the assets was approximately $13.4 million, which
included $11.25 million paid at closing, a $0.9 million price adjustment
paid in July 2004 and a $1.25 million price holdback payable in May 2005.
The price adjustment represents the net book value of assets and
liabilities sold, excluding intangible assets. The price holdback
represents a portion of the sales price held by Thomson to indemnify
Thomson against breaches of the Company's continuing obligations and its
representations and warranties. This amount, which has been recorded in
interest and other receivables, is payable in May 2005 and will earn
interest until paid.
9
The Company recognized a gain on the sale of discontinued operations in
2004 of $11,220,469 which is net of losses on the disposal of remaining
assets related to the video operations of $598,088. The net loss on
disposal of the remaining video assets included a write down of inventory
of $594,609, a loss on the disposal of property and equipment of $83,983,
net of accumulated depreciation of $2,316,294, and a gain from the
recovery of previously reserved accounts receivable of $80,504.
The Company agreed not to compete with the business of the video division
for five years after the closing date. The Company also agreed not to seek
legal recourse against Thomson in respect of its intellectual property
that was transferred or should have been transferred if used in connection
with the video operations. Thomson was granted a license to use the
"ParkerVision" name for a limited time in connection with the transition
of the video business to the integrated operations of Thomson.
For a period of up to six months after the closing, the Company assisted
Thomson in transitioning the video business into Thomson's operations.
This included providing Thomson's employees with office space, training in
respect of the business and the products and services, contract
manufacturing, and certain general administrative functions. The Company
was reimbursed at cost and at cost-plus depending on the service and the
length of time for which the service was provided. The Company sublet to
Thomson a portion of its office space from May 2004 to August 2004.
The purchase agreement provides that each party will indemnify the other
for damages incurred as a result of the breach of their respective
representations and warranties and failure to observe their covenants. In
general, the representations and warranties will survive for 18 months
after the closing and will not be affected by any investigation by the
other party. Each party is obligated to indemnify the other up to
$4,000,000, once a threshold of $150,000 in damages is achieved.
Additionally, the Company must indemnify Thomson against intellectual
property claims for an unlimited period of time, without any minimum
threshold, and with a separate maximum of $5,000,000. Certain other claims
by Thomson will not be limited as to time or amount. Thomson will be
permitted to offset their claims against the amount held back on the sales
price and other amounts due the Company through May 14, 2005 at which time
the holdback amount must be paid to the Company. Currently, the Company is
not aware of any claims against the holdback amount.
The operations of the video business unit were classified as discontinued
operations when the operations and cash flows of the business unit were
eliminated from ongoing operations. The prior years' operating activities
for the video business unit have also been reclassified to "Loss from
discontinued operations" in the accompanying Statements of Operations.
Net loss from discontinued operations for the three month period ended
March 31, 2004 includes the following components:
Three month period ended
March 31, 2004
---------------------------------
Net revenues $ 1,157,970
Cost of goods sold and operating expenses (2,547,608)
---------------------------------
Loss from discontinued operations $(1,389,638)
=================================
9. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
10
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 the Three-Month Periods Ended March 31, 2005 and 2004
- -------------------------------------------------------------------------------
Revenues
Product revenue for the three-month periods ended March 31, 2005 and 2004 were
$171,982 and $45,775, respectively, representing sales of wireless consumer
products. These revenues are net of cooperative marketing costs for the
three-month periods ended March 31, 2005 and 2004 of $29,267 and $24,500,
respectively. For the three-month period ended March 31, 2004, the Company also
recognized a one-time, previously deferred royalty payment of $250,000 upon
termination of a licensing agreement.
In the first quarter of 2004, the Company's wireless product sales channel
consisted of direct web sales and a single e-retailer relationship. During the
third quarter of 2004 the Company began expanding its product distribution to
additional retail outlets. The Company currently has products in over 300 retail
storefronts and multiple e-retailer sites. The increase in product revenues from
the first quarter in 2004 to the same period in 2005 is due to the addition of
these retail outlets throughout the year in 2004.
The Company's ability to increase revenues is dependent upon the rate at which
the Company is able to introduce new products, secure additional distribution
channels, increase brand recognition and customer demand for its products and
sufficiently increase production volumes to meet such demand. The Company has
chosen to maintain a narrow retail distribution channel to date and is currently
evaluating its retail expansion strategy. The Company's longer term business
plan includes the sale of chips, chipsets and/or modules to OEM customers for
integration into their own products. To date, the Company has generated no
revenue from OEM channels. There can be no assurance that the Company will be
able to increase its current level of revenues on a quarterly or annual basis in
the future.
Gross Margin
The gross margins for products and royalties for the three-month periods ending
March 31, 2005 and 2004 were as follows:
11
Three Month Period Ended March 31,
-----------------------
2005 2004
---------- ----------
Products $ (89,742) $ (2,310)
Royalties 0 250,000
In the first quarter of 2004, the Company's product revenues were offset by
cooperative marketing costs of $24,500 resulting in negative gross margins.
These high marketing costs in relation to overall product revenue were due to
marketing programs to launch initial product sales through an e-retail outlet.
In addition, the Company's margin was impacted by start up production costs on
initial production inventory.
In the fourth quarter of 2004, the Company recorded a writedown on its certain
of its wireless product inventory to reduce it to net realizable value. As a
result, the Company anticipated selling this inventory at zero margin in the
first half of 2005. The Company's negative gross margin in the first quarter of
2005 is primarily due to an increase in inventory reserves resulting from
performance yields on certain in process inventories tested during the first
quarter of 2005.
The margin recognized on royalty revenues in the first quarter of 2004 was due
to the recognition of a one-time, previously deferred prepaid royalty in
connection with the termination of the related licensing agreement.
The Company anticipates that zero or possibly even negative gross margins will
continue through the second quarter of 2005 as the Company sells through its
inventory that has been reduced to its net realizable value. The Company
believes its next generation products - which may include chips, chipsets,
modules, or complete branded products - can be produced at significantly lower
manufactured cost as a percentage of revenue. Future gross margins, however, may
be negatively impacted by many factors including competitive sales price
reductions, fluctuating component costs, production yields, start up costs
associated with new product production, and channel marketing costs which are
netted against revenue from retail channels. In addition, to the extent that the
Company is unable to increase sales volume of its products, additional write
downs of inventory may result.
Research and Development Expenses
The Company's research and development expenses for the three-month period ended
March 31, 2005 were $2,921,674 as compared to $2,976,668 for the same period in
2004. The decrease for the three-month period of $54,994, was due to a decrease
in outsourced design work and a decrease in prototype foundry expenses from the
first quarter of 2005 to the same period in 2004, largely due to timing of
projects and prototype foundry runs. These decreases were somewhat offset by an
increase in the allocation of production overhead costs for use of the
manufacturing facility for prototype product development in the first quarter of
2005 and an increase in amortization expense due to increases in patent costs
and intangible research and development assets.
Marketing and Selling Expenses
Marketing and selling expenses for the three-month period ended March 31, 2005
were $989,970 as compared to $262,342 for the same period in 2004. The increase
for the three-month period of $727,628 was primarily due to increases in
advertising and retail market launch expenses to promote the Company's wireless
products and also the addition of marketing, sales and customer support
personnel to support such products. The Company anticipates marketing and
selling expenses to increase in relation to increases in future revenues.
General and Administrative Expenses
General and administrative expenses for the three month period ended March 31,
2005 were $1,536,446 as compared to $1,034,581 for the same period in 2004. The
increase for the three-month period of $501,865 was primarily due to increases
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in corporate outside professional fees and personnel costs, executive travel and
Board compensation, offset somewhat by decreases in corporate insurance costs.
The increase in professional fees incurred is largely due to fees from the
Company's independent auditors related to the Company's 2004 year-end audit,
which for the first time included an internal control evaluation as required by
Section 404 of the Sarbanes Oxley Act of 2002.
Investment Income
Investment income consists of interest earned on the Company's investments and
net gains recognized on the sale of investments. Investment income for the
three-month periods ended March 31, 2005 and 2004 was $33,591 and $53,278,
respectively. The decrease of $19,687 was primarily due to the decrease in
interest income 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.
Discontinued Operations
On February 25, 2004, ParkerVision entered into an asset purchase agreement and
various ancillary agreements ("Asset Agreement") with Thomson Broadcast & Media
Solutions, Inc. ("Thomson") and Thomson Licensing, SA ("Thomson Licensing" and,
together with Thomson, the "Purchasers") for the sale of all the assets of the
Company's video business unit. On May 14, 2004, after receipt of shareholder
approval of the transaction and satisfaction of the conditions to closing, the
Company, Thomson and Thomson Licensing consummated the sale.
The prior year's operations of the video business unit were classified as net
loss from discontinued operations when the operations and cash flows of the
business unit were eliminated from ongoing operations. The prior years'
operating activities for the video business unit have also been reclassified to
"Net loss from discontinued operations" in the accompanying Statements of
Operations.
Net loss from discontinued operations for the three-month period ended March 31,
2004 includes the following components:
Three month period ended
March 31, 2004
------------------------
Net revenues $ 1,157,970
Cost of goods sold and operating expenses (2,547,608)
------------------------
Loss from discontinued operations $(1,389,638)
========================
Loss and Loss per Share
The Company had a net loss of $5,504,241 or $0.30 per common share for the
three-month period ended March 31, 2005 as compared to a net loss of $5,362,261
or $0.30 per common share for the same period in 2004, representing an increase
in net loss of approximately $141,980. The loss per share remained static due to
the additional 2,880,000 shares issued in conjunction with the private placement
in March 2005.
The increase in net loss for the three-month period is primarily due to
increases in operating expenses and the 2004 margin from a one-time royalty
payment, offset by the 2004 loss from discontinued operations.
Liquidity and Capital Resources
At March 31, 2005, the Company had working capital of approximately $25.7
million including approximately $22.8 million in cash, cash equivalents and
short-term investments. This represents an increase of approximately $15.2
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million from working capital of $10.5 million at December 31, 2004. This
increase is due to the proceeds from the private placement in March 2005 of
approximately $20.2 million offset by the use of cash to fund operations of
approximately $4.8 million.
The Company's ability to increase revenues is dependent upon the rate at which
the Company is able to introduce new products, secure additional distribution
channels, increase brand recognition and customer demand for its products and
sufficiently increase production volumes to meet such demand. The Company has
chosen to maintain a narrow retail distribution channel to date and is currently
evaluating its retail expansion strategy. The Company's longer term business
plan includes the sale of chips, chipsets and/or modules to OEM customers for
integration into their own products. To date the Company has generated no
revenue from OEM channels. There can be no assurance that the Company will be
able to increase its current level of revenues on a quarterly or annual basis in
the future.
The overall revenues for 2005 will not be sufficient to cover the operational
expenses of the Company for this fiscal year. The expected continued losses and
negative cash flow will continue to be funded by the use of its available
working capital.
On March 14, 2005, ParkerVision received net proceeds of $20.2 million from the
sale of equity securities in a private placement transaction. The Company plans
to use its cash, cash equivalents and short term investments at March 31, 2005,
to fund its future business plans. The Company believes that its current capital
resources which include the March 2005 equity financing will be sufficient to
support the Company's liquidity requirements at least through December 31, 2005.
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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Not
Applicable
ITEM 4. Controls and Procedures.
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of March 31, 2005 was made under the supervision and with the
participation of the Company's management, including the chief executive officer
and chief financial officer. Based on that evaluation, they concluded that the
Company's disclosure controls and procedures are effective as of the end of the
period covered by this report to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. 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.
14
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
Consideration received and Exemption If option, warrant or
description of underwriting from convertible security,
Title of Number or other discounts to market registration terms of exercise or
Date of sale security sold price afforded to purchasers claimed conversion
- -------------- -------------- ------------- ------------------------------- -------------- --------------------------
1/1/05 to Options to 71,000 Option granted - no 4(2) Expire five years from
3/31/05 purchase consideration received by date vested, options
common stock Company until exercise vest ratably over five
granted to years at exercise prices
employees ranging from $6.79 to
$11.86 per share
3/14/05 Common Stock 2,880,000 Received net proceeds of 4(2) n/a
$20.2 million
3/14/05 Warrants 720,000 Option granted - no 4(2) Exercisable for five
consideration received by years from the date of
Company until exercised the grant at an exercise
price of $9.00 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.
15
(a) Exhibits.
31.1 Section 302 Certification of Jeffery L. Parker, CEO
31.2 Section 302 Certification of Cynthia Poehlman, CFO
32.1 Section 906 Certification
(b) Reports on Form 8-K.
1. Form 8-K, dated March 14, 2005. Item 2.02 - Results of Operations and
Financial Condition. Report of press release disclosing the consummation
of the private placement disclosed in Item 3.02. Item 3.02 - Unregistered
Sales of Equity Secrities. Item 9.01 - Financial Statement and Exhibits.
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 13, 2005 By: /s/Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
May 13, 2005 By: /s/Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
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