UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 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
June 30, 2005 December 31, 2004
(unaudited)
---------------------- --------------------
CURRENT ASSETS:
Cash and cash equivalents $ 17,610,433 $ 6,434,901
Short-term investments 1,295,767 1,363,571
Accounts receivable, net of allowance for doubtful
accounts of $157,927 and $19,164 at June 30, 2005
and December 31, 2004, respectively 122,845 310,400
Interest and other receivables 247,688 1,277,497
Inventories, net 403,669 2,625,763
Prepaid expenses and other current assets 1,503,428 1,781,595
---------------------- --------------------
Total current assets 21,183,830 13,793,727
PROPERTY AND EQUIPMENT, net 2,376,880 3,372,894
OTHER ASSETS, net 9,139,452 10,914,017
---------------------- --------------------
Total assets 32,700,162 28,080,638
====================== ====================
CURRENT LIABILITIES:
Accounts payable 435,640 857,954
Accrued expenses:
Salaries and wages 1,561,319 1,130,860
Professional fees 98,000 202,787
Warranty reserves 37,089 4,853
Purchase commitments 0 194,000
Other accrued expenses 324,546 524,930
Deferred revenue 830,545 407,403
---------------------- --------------------
Total current liabilities 3,287,139 3,322,787
---------------------- --------------------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8, 10 and 11) - -
---------------------- --------------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000
shares authorized, 20,900,374 and 18,006,324 shares
issued and outstanding at June 30, 2005 and December
31, 2004, respectively 209,004 180,063
Warrants outstanding 17,693,482 14,573,705
Additional paid-in capital 137,693,039 120,488,205
Accumulated other comprehensive loss (3,396) (427)
Accumulated deficit (126,179,106) (110,483,695)
---------------------- --------------------
Total shareholders' equity 29,413,023 24,757,851
---------------------- --------------------
Total liabilities and shareholders' equity $ 32,700,162 $ 28,080,638
====================== ====================
The accompanying notes are an integral part of these financial statements.
2
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, Six months ended June 30,
-------------------------------------- -------------------------------------
2005 2004 2005 2004
----------------- ----------------- ----------------- ----------------
Product revenue $ 122,397 $ 63,811 $ 294,379 $ 109,586
Royalty revenue 0 0 0 250,000
----------------- ----------------- ----------------- ----------------
Net revenues 122,397 63,811 294,379 359,586
----------------- ----------------- ----------------- ----------------
Cost of goods sold 133,791 81,209 395,515 129,293
Write down of inventory to net realizable value 2,250,586 0 2,250,586 0
----------------- -- ----------------- -- ----------------- -- ----------------
Gross margin (2,261,980) (17,398) (2,351,722) 230,293
----------------- ----------------- ----------------- ----------------
Research and development expenses 3,192,260 2,399,076 6,113,934 5,375,743
Marketing and selling expenses 1,282,668 416,013 2,272,638 678,355
General and administrative expenses 1,805,789 1,135,148 3,333,529 2,169,729
Impairment loss and loss on disposal of equipment 1,871,490 0 1,880,196 0
----------------- ----------------- ----------------- ----------------
Total operating expenses 8,152,207 3,950,237 13,600,297 8,223,827
----------------- ----------------- ----------------- ----------------
Interest and other income 223,017 46,572 256,608 99,848
----------------- ----------------- ----------------- ----------------
Loss from continuing operations (10,191,170) (3,921,063) (15,695,411) (7,893,686)
Net gain from discontinued operations
(including gain on the disposal of
$11,209,226 in 2004) 0 9,179,347 0 7,789,709
----------------- ----------------- ----------------- ----------------
Net (loss) income (10,191,170) 5,258,284 (15,695,411) (103,977)
Unrealized gain (loss) on securities 746 (25,317) (2,969) (26,351)
----------------- ----------------- ----------------- ----------------
Comprehensive (loss) income $(10,190,424) $5,232,967 $(15,698,380) $(130,328)
================= ================= ================= ================
Basic and diluted net loss per common share
Continuing operations $(0.49) $(0.22) $(0.80) $(0.44)
Discontinued operations 0.00 0.51 0.00 0.43
----------------- ----------------- ----------------- ----------------
Total $(0.49) $ 0.29 $(0.80) $ (0.01)
================= ================= ================= ================
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 Six Months Ended
June 30, June 30,
------------------------------------ ----------------------------------
2005 2004 2005 2004
----------------- --------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(10,191,170) $ 5,258,284 $(15,695,411) $ (103,977)
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization 785,041 742,129 1,586,352 1,538,246
Amortization of discounts on investments 7,258 10,063 14,835 23,449
Provision for obsolete inventories 0 20,000 67,940 95,000
Write-down of inventory to net realizable value 2,250,586 0 2,250,586 0
Impairment loss on other assets 1,245,792 0 1,245,792 0
Stock compensation 229,150 405,909 429,150 605,909
Gain on sale of discontinued operations 0 (11,209,226) 0 (11,209,226)
Loss on disposal and impairment of equipment 625,697 640 634,404 1,275
Changes in operating assets and liabilities, net
of disposition in 2004:
Accounts receivable, net 76,671 338,022 187,555 194,284
Inventories 59,804 (1,559,721) (96,432) (2,140,332)
Prepaid expenses, interest receivable
and other assets 1,417,748 601,395 1,484,633 533,286
Accounts payable and accrued expenses 111,801 (1,386,578) (458,790) 279,584
Deferred revenue 236,065 249,349 423,142 48,593
---------------- ---------------- ---------------- --------------
Total adjustments 7,045,613 (11,788,018) 7,769,167 (10,029,932)
---------------- ---------------- ---------------- --------------
Net cash used in operating activities (3,145,557) (6,529,734) (7,926,244) (10,133,909)
----------------- --------------- ---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/sale of investments 0 500,000 300,000 800,000
Purchase of investments (250,000) 0 (250,000) 0
Proceeds from sale of video business unit
assets and other property and equipment 0 10,903,939 0 10,903,939
Purchases of property and equipment (302,058) (199,210) (479,435) (422,627)
Payments for patent costs (437,133) (230,369) (705,593) (382,590)
----------------- --------------- ---------------- --------------
Net cash (used in) provided
by investing activities (989,191) 10,974,360 (1,135,028) 10,898,722
----------------- --------------- ---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 0 20,236,804 0
----------------- --------------- ---------------- --------------
Net cash provided by financing activities 0 0 20,236,804 0
----------------- --------------- ---------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(4,134,748) 4,444,626 11,175,532 764,813
CASH AND CASH EQUIVALENTS, beginning of period 21,745,181 13,788,062 6,434,901 17,467,875
----------------- --------------- ---------------- --------------
CASH AND CASH EQUIVALENTS, end of period $17,610,433 $18,232,688 $17,610,433 $18,232,688
================= =============== ================ ==============
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 and six month periods ended June 30, 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 or six-month periods ended June 30, 2005
and 2004. Unrealized gains (losses) on investments for the three and six
month periods ended June 30, 2005 were $746 and $(2,969), respectively,
and $(25,317) and $(26,351), respectively, for the same periods in 2004.
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 at
their estimated fair value of approximately $3.1 million (see Note 8). On
April 12, 2005, the Company issued options, valued at approximately
$146,000, under the terms of the 2000 Performance Equity Plan as
consideration for professional services (see Note 7). On May 14, 2004, the
Company issued restricted common stock, valued at approximately $206,000,
under the terms of the 2000 Performance Equity Plan to former employees as
part of the severance package pertaining to the discontinued operations of
the video business unit (see Note 10).
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. 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 10). For the three and six month periods ended June 30, 2005,
warranty expenses were $30,873 and $32,236, respectively. For the three
and six month periods ended June 30, 2004, warranty expenses were $2,064
and $12,355, respectively, of which $1,212 and $10,587, respectively, were
included in discontinued operations.
A reconciliation of the changes in the aggregate product warranty
liability for the three and six-month periods ended June 30, 2005 are as
follows:
5
Warranty Reserve
Debit (Credit)
--------------------------------------------------
Three months ended June Six month ended June
30, 2005 30, 2005
--------------------------------------------------
Balance at the beginning of the period $ (6,216) $ (4,853)
Accruals for warranties issued during the period (30,873) (32,236)
Settlements made (in cash or in kind) during the period 0 0
--------------------------------------------------
Balance at the end of the period $ (37,089) $ (37,089)
==================================================
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 10). 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
extended service contracts for the three and six month periods ended June
30, 2004 is as follows:
Deferred Revenue from Extended Service Contracts
-----------------------------------------------------
Three months ended Six months ended
June 30, 2004 June 30, 2004
------------------------ -------------------------
Accruals for contracts issued during the period (16,575) (129,875)
Revenue recognized during the period 92,976 236,428
Reduction as a result of discontinued operations 455,031 455,031
------------------------ -------------------------
Balance at the end of the period $ 0 $ 0
======================== =========================
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's product revenue for 2005 and 2004
relates primarily to products sold through retail distribution channels,
with limited sales direct to end users through the Company's 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 June
30, 2005 and December 31, 2004, the Company had deferred revenue from
product sales in the distribution channel of $830,545 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 product 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 and six month periods ended June 30, 2005, net revenue was
reduced for cooperative marketing costs in the amount of $7,515 and
$36,782, respectively. For the three and six month periods ended June 30,
2004, net revenue was reduced for cooperative marketing costs in the
amount of $42,000 and $66,500, respectively.
6
Accounting for Stock-Based Compensation.
At June 30, 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 non-employee stock option
grants, the Company applies the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", ("FAS 123"),
as amended by FASB Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("FAS 148"). 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 FAS 123, as amended by FAS 148, to stock-based employee
compensation.
Three months ended Six months ended
------------------------------------ ---------------------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------------- ------------------ ------------------ --------------------
Net income (loss), as reported $(10,191,170) $5,258,284 $(15,695,411) $ (103,977)
Deduct: Total stock-based
employee compensation expense
determined under fair value
method, net of related tax effects
(1,900,838) (2,823,186) (3,495,982) (5,708,431)
----------------- ------------------ ------------------ --------------------
Pro forma net loss $(12,092,008) $2,435,098 $(19,191,393) $(5,812,408)
================= ================== ================== ====================
Basic and diluted net loss per
share: As reported $(0.49) $0.29 $(0.80) $(.01)
================= ================== ================== ====================
Pro forma $(0.58) $0.14 $(0.97) $(.32)
================= ================== ================== ====================
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.
7
2. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITY
On June 23, 2005 the Company's Board of Directors unanimously approved
management's decision to exit its retail business activities. On June 28,
2005 the Company formally announced its exit plan and terminated 44
employees whose roles were related to retail business activities. As of
June 30, 2005, termination benefits of approximately $575,000 were accrued
and charged to expense in the consolidated statement of operations
including $488,000 related to research and development and prototype
manufacturing personnel, $74,000 related to sales and marketing personnel
and $13,000 related to general and administrative personnel. None of these
accrued termination benefits were paid as of June 30, 2005. Sales and
marketing expense also includes approximately $40,000 of accrued
liabilities related to retail contract terminations at June 30, 2005.
In addition to termination benefits, the Company recognized impairment
charges on certain long-lived assets related to its retail activities.
These charges include impairment of prepaid license fees of approximately
$662,000, impairment of other intangible assets of approximately $584,000
and impairment of fixed assets, primarily the manufacturing and prototype
facility assets, of approximately $626,000. These impairment charges are
included as impairment loss in the consolidated statement of operations.
The Company is in the process of reclaiming unsold inventory from its
retail outlets and distributors and plans to sell its remaining inventory
to one or more wholesalers. As a result, the Company has reduced the
carrying value of its inventories to their estimated net realizable value
as of June 30, 2005. This reduction resulted in a net realizable value
charge of approximately $2,251,000 which has been included as a separate
component of cost of goods sold in the consolidated statement of
operations.
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 June 30, 2005 and 2004 are 20,900,374 and 17,983,686,
respectively. The weighted average number of common shares outstanding for
the six-month periods ended June 30, 2005 and 2004 are 19,732,970 and
17,971,662, respectively. The total number of options and warrants to
purchase 6,466,865 and 7,226,127 shares of common stock were outstanding
at June 30, 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.
4. INVESTMENTS
At June 30, 2005 and December 31, 2004, short-term investments included
investments classified as available-for-sale reported at their fair value
based on quoted market prices of $1,045,767 and $1,363,571, respectively.
Short term investments at June 30, 2005 also included a certificate of
deposit reported at cost of $250,000. The certificate of deposit, which
expires in November 2005, was purchased to secure a standby letter of
credit with one of the Company's retailers for purposes of guaranteeing
payments on customer rebate programs.
8
5. INVENTORIES:
Inventories consist of the following:
June 30, December 31, 2004
2005
------------------ -------------------
Purchased materials $100,009 $1,837,364
Work in process 0 165,709
Finished goods 303,660 831,435
------------------ -------------------
403,669 2,834,508
Less allowance for inventory obsolescence 0 (208,745)
------------------ -------------------
$403,669 $2,625,763
================== ===================
On June 28, 2005, the Company announced its plans to exit its retail
business activities (see Note 2). The Company is in the process of
reclaiming unsold inventory from its retail outlets and distributors and
plans to sell its remaining inventory to one or more wholesalers. As a
result, the Company has reduced the carrying value of its inventories by
$2,250,586 to its estimated net realizable value as of June 30, 2005. This
charge has been included as a separate component of cost of goods sold in
the consolidated statement of operations.
6. OTHER ASSETS:
Other assets consist of the following:
June 30, 2005
----------------------------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------------- ------------------ -------------------
Patents and copyrights $11,191,758 $(2,738,761) $8,452,997
Prepaid licensing fees 705,000 (319,750) 385,250
Other intangible assets 0 0 0
Prepaid services, non
current portion 200,000 (200,000) 0
Deposits and other 301,205 0 301,205
------------------- ------------------ -------------------
$12,397,963 $(3,258,511) $9,139,452
=================== ================== ===================
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
=================== ================== ===================
9
On June 28, 2005, the Company announced its plans to exit its retail
business activities (see Note 2). As a result of this action, certain
prepaid license fees and other intangible assets became impaired.
Impairment charges of $661,667 and $584,125 related to prepaid license
fees and other intangibles, respectively, have been included as impairment
loss in the consolidated statement of operations.
7. STOCK OPTIONS
For the three months ended June 30, 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 16,000 shares of its common stock at exercise prices ranging from $4.77
to $6.00 per share vesting ratably over five years and expire five years
from the date they become vested. The Company also granted stock options
under the 2000 Plan to the independent, outside directors of the Company
to purchase an aggregate of 60,000 shares of its common stock at an
exercise price of $4.22 per share. These options vested immediately and
expire ten years from the date they became vested.
On April 12, 2005 the Company granted stock options to an outside
consultant under the 2000 Plan in connection with a consulting agreement
to purchase an aggregate of 40,000 shares of its common stock at an
exercise price of $7.55 per share. The first 20,000 options vest ratably
over fifteen months. The remaining 20,000 options vest if certain market
conditions are met. These options expire thirty-six months from the date
they become vested. The total fair value of these options of approximately
$146,000 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 3.86%, no expected dividend yield, expected life of
three years and expected volatility of 81.86%. The estimated fair value of
the options will be amortized to expense in the Company's consolidated
statement of operations over the term of the contract.
As of June 30, 2005 options to purchase 1,494,920 shares of common stock
were available for future grants under the 2000 Plan.
8. 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
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 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
10
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 ceases to be effective, the liquidated
damages are only payable relative to the shares of common stock still held
by the Investors.
On May 14, 2004 the Company issued 46,820 shares of restricted common
stock, valued at approximately $206,000, or approximately $4.40 per share,
under the terms of the 2000 Performance Equity Plan to former employees as
part of the severance package pertaining to the discontinued operations of
the video business unit. The shares are fully vested and non-forfeitable
and have been charged to expense as part of discontinued operations.
9. 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 8) were classified as equity on the issuance date.
10. 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.
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. In May 2005, Thomson paid the Company
approximately $1.1 million representing the price holdback, including
interest, less approximately $215,000 for claims made against the
Company's indemnification obligations. The Company has disputed these
claims as unfounded and does not believe a loss is probable.
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 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.
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.
11
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.
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 consolidated statement of
operations.
Discontinued operations for the three and six month periods below include
the following components:
Three Month Period Ended Six Month Period Ended
-------------------------- -----------------------
June 30, 2004 June 30, 2004
-------------------------- -----------------------
Net revenues $ 349,694 $ 1,507,664
Cost of goods sold and operating expenses (2,379,573) (4,927,181)
-------------------------- -----------------------
Net loss from operations (2,029,879) (3,419,517)
Gain on sale of assets 11,209,226 11,209,226
-------------------------- -----------------------
Gain (loss) from discontinued operations $ 9,179,347 $ 7,789,709
========================== =======================
11. 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.
12. LIQUIDITY AND CAPITAL RESOURCES
In June 2005, the Company announced its decision to exit its retail
business activities and continue its pursuit of a business strategy as a
fabless semiconductor company. The Company does not anticipate generating
revenue from its original equipment manufacturer ("OEM") activities in
2005 and furthermore expects that its retail product related revenue will
cease by the end of the third quarter of 2005. The Company's ability to
generate future revenues is dependent upon the rate at which the Company
is able to secure OEM design wins and produce integrated circuits ("IC's")
to OEM specifications.
The overall revenues for 2005 will not be sufficient to cover the
operational expenses of the Company for this fiscal year. The expected
losses and negative cash flow will continue to be funded by the use of
available working capital. At June 30, 2005, the Company had working
capital of approximately $17.9 million including approximately $18.9
million in cash, cash equivalents and short-term investments. The Company
believes that its current capital resources will be sufficient to support
the Company's liquidity requirements at least through the first half of
2006. 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. Management also believes it has the potential to collect non
recurring engineering charges and/or advance payments for custom designed
products from OEM prospective customers to offset certain
12
product development expenses. 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 goals.
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 and Six-Month Periods Ended June 30,
2005 and 2004
General
On June 28, 2005 the Company announced its plan to exit its retail business
activities and continue its pursuit of an OEM business strategy as a pure-play
fabless semiconductor company. The Company's decision to exit its retail
activities was precipitated by increased interest from OEM prospects in the
Company's core wireless technologies. Management determined that the investment
required to increase brand awareness, expand product offerings and expand the
distribution channel for retail products would detract from the Company's
ability to capitalize on OEM opportunities.
Exiting the retail business resulted in charges to the Company's second quarter
operating results totaling approximately $4,738,000. These charges include
aggregate termination benefits for 44 employees of approximately $575,000,
impairment charges related to long-lived assets of approximately $1,872,000,
charges of approximately $2,251,000 to reduce inventories to their net
realizable value and other miscellaneous charges of approximately $40,000.
Approximately $4,123,000 of the second quarter charges represents non-cash
charges.
The Company plans to reclaim unsold product inventory from the distribution
channel and liquidate its raw materials and finished product inventory through
wholesale channels. The Company also plans to liquidate its manufacturing and
prototype facility assets and other property and equipment utilized in the
retail business activities. These assets have been reduced to their expected
recovery value as of June 30, 2005. The Company anticipates substantial
completion of its retail exit activities by the end of the third quarter of
2005.
The exit from retail activities is expected to reduce the Company's future
operating expenses by approximately $1.5 million each quarter and future cash
usage is expected to be reduced by approximately $1.0 million each quarter.
These reductions are primarily a result of reduced personnel
13
costs, elimination of retail marketing costs and reduced depreciation and
amortization expense for impaired assets. These quarterly reductions may be
somewhat offset by future increases in operating expenses and cash usage related
to OEM product development and marketing.
Revenues
Product revenues for the three and six month periods ended June 30, 2005 and
2004 represent sales of wireless consumer products. Product revenues for the
three and six month periods ended June 30, 2005 were $122,397 and $294,379
respectively. These revenues are net of cooperative marketing costs of $7,515
and $36,782, respectively. Product revenues for the three and six month periods
ended June 30, 2004 were $63,811 and $109,586 respectively. These revenues are
net of cooperative marketing costs for the three and six month periods ended
June 30, 2004 of $42,000 and $66,500, respectively. In the first quarter of
2004, the Company also recognized a one-time, previously deferred royalty
payment of $250,000 upon termination of a licensing agreement.
In the first half 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 increase in product revenues from the three and
six month periods in 2004 to the same periods in 2005 is due to the addition of
these retail outlets throughout the year in 2004, offset somewhat by customer
rebate programs during the second quarter of 2005 which are netted against
revenues.
The Company anticipates continuing revenues from its retail products through the
third quarter of 2005 as the remaining product inventory is sold through
existing and wholesale distribution channels. The Company is actively pursuing
OEM design opportunities for its ICs but does not anticipate generating revenue
from sales of its ICs in 2005.
Gross Margin
The gross margins for products and royalties for the three and six-month periods
were as follows:
June 30, 2005 June 30, 2004
---------------- ----------------
Products
Three month period $(2,261,980) $ (17,398)
Six month period $(2,351,722) $ (19,707)
Royalties
Three month period $ 0 $ 0
Six month period $ 0 $ 250,000
As a result of the Company's decision to exit its retail business activities,
the Company's product margins in 2005 were impacted by a write down of inventory
to net realizable value in the amount of $2,250,586. This reduction in inventory
value is due to the Company's expectation that its remaining finished product
and raw materials inventories will be sold through wholesalers at significantly
reduced prices.
The Company's product margins in 2004 are reflective of significant excess
capacity costs and low volume component purchase costs. 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.
14
Research and Development Expenses
The Company's research and development expenses for the three month period ended
June 30, 2005 were $3,192,260 as compared to $2,399,076 for the same period in
2004. For the six-month period ended June 30, 2005, the Company's research and
development expenses were $6,113,934 as compared to $5,375,743 for the same
period in 2004. The increases for the three and six month periods of
approximately $793,200 and $738,200 are primarily due to termination costs in
June 2005 resulting from product engineering staff reductions, increased
prototype costs, including overhead costs of maintaining a prototype
manufacturing facility, and increased amortization for patent and other
intangible assets. These increases were somewhat offset by decreases in outside
design services related to retail product development.
Marketing and Selling Expenses
Marketing and selling expenses for the three month period ended June 30, 2005
were $1,282,668 as compared to $416,013 for the same period in 2004, and for the
six month period ended June 30, 2005 were $2,272,638 compared to $678,355 for
the same period in 2004. The increases for the three and six month period of
approximately $866,700 and $1,594,300 were primarily due to increases in sales
and marketing personnel and related costs for both the OEM and retail business
and promotional programs related to the retail business.
General and Administrative Expenses
General and administrative expenses for the three month period ended June 30,
2005 were $1,805,789 as compared to $1,135,148 for the same period in 2004 and
for the six month period ended June 30, 2005 were $3,333,957 compared to
$2,169,729 for the same period in 2004. The increases for the three and six
month periods of approximately $670,600 and $1,164,200 were primarily due to
increases in outside professional fees, increases in administrative personnel
and increases in the provision for bad debts, offset somewhat by decreases in
corporate insurance costs.
Impairment Loss and Loss on Disposal of Equipment
Impairment loss and loss on disposal of equipment includes losses on the
disposal of property and equipment in the normal course of business and losses
incurred in June 2005 of approximately $1,872,000 related to impairment of
certain fixed assets, intangible assets, and prepaid licenses fees in connection
with the Company's exit from retail activities (see Note 2 of the Financial
Statements).
Interest and Other Income
Interest and other income consist of interest earned on the Company's
investments, net gains recognized on the sale of investments, and other
miscellaneous income. Interest and other income for the three and six month
periods ended June 30, 2005 was $223,017 and $256,608, respectively, as compared
to $46,572 and $99,848 for the same periods in 2004. The increases of
approximately $176,400 and $156,800 were primarily due to an increase in cash
and investments from the proceeds of the private placement in the first quarter
of 2005 and proceeds from the sale of scrap inventory, offset by the continued
use of cash and investments to fund operations.
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.
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 gain (loss) from discontinued operations for the three and six month periods
below include the following components:
Three Month Period Six Month Period
Ended Ended
---------------------- ----------------------
June 30, 2004 June 30, 2004
---------------------- ----------------------
Net revenues $ 349,694 $ 1,507,664
Cost of goods sold and operating expenses (2,379,573) (4,927,181)
---------------------- ----------------------
Net loss from operations (2,029,879) (3,419,517)
Gain on sale of assets 11,209,226 11,209,226
---------------------- ----------------------
Gain from discontinued operations $ 9,179,347 $ 7,789,709
====================== ======================
Loss and Loss per Share
The Company had a net loss of $(10,191,170) or $(0.49) per common share for the
three month period ended June 30, 2005 as compared to net income of $5,258,284
or $0.29 per common share for the same period in 2004, representing a decrease
in net income of approximately $15,449,500 or $0.78 per common share. The net
loss increased from $(103,977) or $(0.01) per common share for the six month
period ended June 30, 2004 to $(15,655,411) or $(0.80) per common share for the
same period in 2005, representing an increase in the net loss of approximately
$15,551,400 or $0.79 per common share.
The decrease in net income and increase in net loss for the three and six month
periods is primarily due to the net gain on the sale of the video business unit
assets in the second quarter of 2004 and increases in operating expenses,
severance costs, and impairment charges due to the Company's exit of its retail
business activities in June 2005.
Liquidity and Capital Resources
At June 30, 2005, the Company had working capital of approximately $17.9 million
including approximately $18.9 million in cash, cash equivalents and short-term
investments. This represents an increase of approximately $7.4 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, offset by cash used to
fund operations.
In June 2005, the Company announced its decision to exit its retail business
activities and continue its pursuit of an OEM business strategy as a pure-play
fabless semiconductor company. The Company does not anticipate generating
revenue from its OEM activities in 2005 and furthermore expects that its retail
product related revenue will cease by the end of the third quarter of 2005. The
Company's ability to generate future revenues is dependent upon the rate at
which the Company is able to secure OEM design wins and produce IC's to OEM
specifications.
The overall revenues for 2005 will not be sufficient to cover the operational
expenses of the Company for this fiscal year. The expected losses and negative
cash flow will continue to be funded by the use of its available working
capital. The Company's exit from retail activities is expected to reduce the
rate of cash usage by approximately $1.0 million each quarter.
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
16
short term investments at June 30, 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 the first half of 2006. 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.
Management also believes it has the potential to collect non recurring
engineering charges and/or advance payments for custom designed products from
prospective OEM customers to offset certain product development expenses. 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 June 30, 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. For the three month period covered by this report, there has been no
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.
17
ITEM 2. Changes in Securities.
Sales of Unregistered Securities
Consideration received and Exemption If option, warrant or
description of underwriting or from convertible security,
Date of sale Title of Number other discounts to market price registration terms of exercise or
security sold afforded to purchasers claimed conversion
-------------- -------------- ---------- ---------------------------------- -------------- --------------------------
5/13/05 to Options to 16,000 Option granted - no 4(2) Expire five years from
5/27/05 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 $4.77 to
$6.00 per share
6/11/05 Options to 60,000 Option granted - no 4(2) Expire ten years from
purchase consideration received by date vested, options
common stock Company until exercise vest immediately at an
granted to exercise price of $4.22
directors per share
4/12/05 Options to 40,000 Option granted - no 4(2) Expire 36 months years
purchase consideration received by from date vested, 20,000
common stock Company until exercise options vest ratable
granted to over term of agreement,
outside 20,000 contingent vest
consultant under terms of
agreement, at an
exercise price of $7.55
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 Jeffery L. Parker, CEO
31.2 Section 302 Certification of Cynthia Poehlman, CFO
32.1 Section 906 Certification
99.1 Risk Factors (Previously filed with Form 10Q for the period
ended June 30, 2005.)
18
(b) Reports on Form 8-K.
1. Form 8-K, dated June 28, 2005. Item 2.05 - Costs Associated
with Exit or Disposal Activities. Item 2.06 - Material
Impairments. Item 9.01 - Financial Statement and Exhibits.
Report of press release announcing the Company's exit of its
retail business activities.
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
September 28, 2005 By: /s/Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chairman and Chief Executive Officer
September 28, 2005 By: /s/Cynthia L. Poehlman
-----------------------
Cynthia L. Poehlman
Chief Financial Officer
19