UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-K
(Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ________to__________
Commission file number 0-22904
PARKERVISION, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2971472
(State of Incorporation) (I.R.S. Employer ID No.)
8493 BAYMEADOWS WAY
JACKSONVILLE, FLORIDA 32256
(904) 737-1367
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate by check mark if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K (X).
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No __
As of June 30, 2004, the aggregate market value of the Issuer's Common Stock,
$.01 par value, held by non-affiliates of the Issuer was approximately
$76,674,918 (based upon $5.70 per share closing price on that date, as reported
by The Nasdaq National Market).
As of March 10, 2005, 18,007,574 shares of the Issuer's Common Stock were
outstanding.
Documents incorporated by reference: Portions of the definitive Proxy Statement
to be delivered to stockholders in connection with the 2005 Annual Meeting are
incorporated by reference into Part III.
Table of Contents
Forward Looking Statements 3
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Consolidated Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 52
Item 9A. Controls and Procedures 52
PART III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 53
Item 13. Certain Relationships and Related Transactions 54
Item 14. Principal Accountant Fees and Services 54
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K 54
SIGNATURES 58
INDEX TO EXHIBITS 60
2
Forward-Looking Statements
We believe that it is important to communicate our future expectations to our
shareholders and to the public. This report contains forward-looking statements,
including, in particular, statements about our future plans, objectives and
expectations under the headings "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this report. When used in this Form 10-K and in future filings by ParkerVision,
Inc., ("the Company") with the Securities and Exchange Commission, the words or
phrases "will likely result", "management expects", "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. We have 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.
PART I
ITEM 1. BUSINESS
GENERAL
ParkerVision, Inc. (the "Company") was incorporated under the laws of the state
of Florida on August 22, 1989. Prior to the sale of the Company's video division
assets in May 2004, the Company was organized in two distinct business segments
- - the wireless division and the video division. Subsequent to the sale of the
Company's video division assets, the Company's operations consist of the
wireless technologies and products business.
The Company designs, develops and markets wireless integrated circuits ("ICs")
and products based on its proprietary wireless radio frequency ("RF")
transceiver technology. The Company's revenues from continuing operations have
been generated from the sale of branded, wireless networking products that
incorporate the Company's proprietary technology. The Company's longer-term
business strategy includes the establishment of relationships with original
equipment manufacturers ("OEMs") and original design manufacturers ("ODMs") for
the incorporation of the Company's technology into products manufactured by
others. These products may take the form of IC's, sub-systems or finished
products that incorporate the Company's proprietary technology. It is also
possible that the Company may license implementations of the technology to
others for incorporation into IC's that contain more comprehensive wireless
system functions. The Company believes its proprietary wireless technologies
embody significant industry advances that can be commercialized in both the near
and longer term.
To date, the Company's wireless operations have not generated any significant
revenue. The ability for wireless revenues to offset costs is subject to (a) the
Company's ability to successfully market its wireless IC's and/or sub-systems to
OEMs and ODMs for integration into widely deployed products that are
manufactured by others and (b) the Company's ability to successfully market its
branded, wireless networking products to end-users, generally for use in
residential and commercial applications.
3
RECENT DEVELOPMENTS
Sale of Video Division
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. The sales price of the
assets was approximately $13.4 million. A portion of the sales price equal to
$1.25 million was held by Thomson until May 2005 to indemnify Thomson against
breaches of the Company's continuing obligations and its representations and
warranties. The Company recognized a gain on the sale of its video division of
approximately $11.2 million.
The Company's statements of operations have been restated to reflect the video
division as discontinued operations.
Sale of Equity Securities to Fund Continuing Operations
On March 14, 2005, the Company completed the sale of equity securities to
institutional and other investors in a private placement transaction. The net
proceeds from this transaction of approximately $20.3 million will be used to
fund continuing operations.
DESCRIPTION OF BUSINESS
The Company's continuing operations consist of the design, development and
marketing of technologies and products based on its proprietary wireless
technology, targeting both residential and commercial consumers and OEM and ODM
markets. The Company's core technology, called Direct2Data(TM) or D2D(TM), is a
wireless direct conversion radio frequency transceiver technology that may be
applied to all areas of wireless communications, regardless of standard,
frequency or modulation. The Company has also recently announced its
introduction of two new classes of digital RF power amplifiers that are based on
extensions of the science and technology of D2D.
Products
The Company has designed and produced several D2D-based transceiver IC's with a
proprietary electronic circuit configuration that enables the creation of
practical, high performance transceivers. These proprietary transceivers reduce
or eliminate transmission and receiving problems inherent in traditional analog
circuits that are commercially available. Wireless products employing D2D
technology, when compared to products utilizing traditional electronic circuit
designs, have the ability to function at farther distances with increased
connection reliability and less power consumption. The Company further believes
that D2D-based implementations can enable both size and cost reductions when
compared with traditional analog devices due to the technology's ability to
eliminate the need for metal shielding of components in the manufacturing
process.
The Company targeted wireless local area networking ("WLAN") for its initial
products. The Company completed its first transceiver chips for the WLAN market
in 2002, and in 2003 the Company began marketing its chips to OEMs and ODMs who
manufacture and sell WLAN products or application modules that embed WLAN
4
capabilities. The Company found that the unique nature of its technology and
related design requirements along with the lack of brand recognition in the
marketplace hindered the Company's marketing efforts.
In 2003, the Company began pursuing a business strategy of developing its own
D2D-based WLAN products for marketing to end-users. The Company believed this
strategy would not only generate initial product revenue but would also provide
a proof of concept to OEMs and ODMs of the underlying technology. In addition,
the Company believed the development of finished products enables better
understanding of the manufacturing requirements, design interface needs and
other requirements which allows refinement of designs in subsequent generations
of IC's.
In the fourth quarter of 2003, the Company introduced its first D2D-based WLAN
end-user products for wireless Internet data networking applications. These
products include a wireless local area networking (WLAN) card, designed for use
with laptop computers, a wireless universal serial bus ("USB") adaptor for use
with desktop computers and a wireless four-port router for networking
applications. All of the Company's initial products are compliant with the
802.11b industry standard for WLAN communications. These products are targeted
for the residential and small office/home office ("SoHo") segments of the WLAN
market where Broadband Internet access services have become increasingly
affordable and available and WLANs provide mobility for users at an affordable
alternative to wired networks.
The Company offers professional telephone support for its products at no charge
and includes a 30-day money-back guarantee to allow the consumer a "risk-free"
test of the Company's product performance claims. In addition, the Company
warrants its products against defects in workmanship for a period of one year.
The Company's immediate branded product development plans include expansion of
its WLAN products to products to meet the 802.11g standard and the introduction
of a high performance cordless phone utilizing the D2D technology.
The Company believes that its 802.11g products will deliver superior data rates
at longer distances, require less complex hardware implementations, use less
power, and offer more resistance to interference than competing 802.11g
products. The Company expects availability of its 802.11g products in the second
quarter of 2005.
The Company has also been developing a cordless phone product that incorporates
its D2D transceivers. The cordless phone product is designed to achieve longer
distances and better reliability than typical consumer cordless phones. The
Company's cordless phone is also expected to have improved audio quality. The
cordless phone product includes attractive battery life and a high quality
speaker phone for the handset. The Company is pursuing various potential sales
channels for this product which may include OEM's, specialty retailers, mass
merchandisers, and direct marketing. The Company's introduction of the cordless
phone product is dependent upon achieving certain cost targets for production of
the phone as well as the level of interest from the possible distribution
channels.
In the fourth quarter of 2004, the Company's 802.11b inventory was written down
by approximately $2.8 million to reflect a reduction in net realizable value of
the inventory. This write down was triggered by a significant price decrease on
the Company's 802.11b wireless networking product line in the fourth quarter of
2004, along with the high carrying costs of initial production inventory. Early
in 2005, the Company ceased production of its 802.11b products in anticipation
of the introduction of its next generation 802.11g products. The Company
believes it has sufficient finished goods inventory to meet demand until its new
products begin shipping.
5
The Company's retail product expansion will be dependent upon its ability to
achieve acceptable gross margins with competitively priced products. In
addition, the Company has reduced its exposure to future inventory obsolescence
through the implementation of inventory management programs with certain key
suppliers to reduce on hand quantities of inventory while still maintaining an
adequate supply for production needs.
In the first quarter of 2005, the Company announced an extension of the science
of its patented D2D technology in the form of a unique digital RF power
amplifier technology. This power amplifier technology will specifically target
the OEM and ODM markets. This technology enables the production of high
performance, low cost radio frequency power amplifiers from common silicon
semiconductors. The digital architecture enables models of power amplifiers that
inherently perform the function of traditional RF transmitters and eliminate the
need for traditional transmitter hardware. Based on this technology, the Company
has announced two families of RF power amplifier products - the vector power
amplifier (VPA) and the digital power amplifier (DPA). Various models of this
product family represent ultra-efficient digital RF power amplifiers that reduce
transmitter power consumption for many battery-powered wireless products by 50%
to 80%. These power amplifiers will be monolithic (single chip) implementations
that can be produced in less expensive, higher volume silicon semiconductor
processes than are traditionally used. The Company's digital power amplifiers
produced on common semiconductors also have the potential to be designed onto
larger system chips which may include other wireless system functions.
The company's digital power amplifier DPA family is intended to be incorporated
into product designs as a drop-in replacement for traditional analog RF power
amplifier modules. The DPA will be a silicon chip versus a multi-component
module which is typically used in many of the analog RF power amplifiers today.
The company's VPA family of amplifiers eliminates the need for traditional RF
transmitters. VPA's receive digital baseband signals that would normally be sent
from a product's baseband processor to a traditional RF transmitter. Eliminating
the traditional RF transmitter, the VPA converts the digital signal, in a single
efficient step, to an on-channel amplified RF carrier.
The Company expects to be demonstrating prototypes of its power amplifier
technology as well as providing samples of its initial power amplifier IC's in
2005. The Company believes it will be able to demonstrate the use of the
technology for a wide range of cellular telephone standards for handset
applications, for wireless networking products, for cordless phones and for
Bluetooth applications. The Company plans to demonstrate how the technology can
be used for products where multiple wireless standards and frequencies are
incorporated and where a single monolithic chip implementation can replace the
multiple components required in today's traditional analog power amplifier
products. The Company further believes its power amplifiers will demonstrate
enhancements in one or more features including power efficiency, cost, size and
linearity.
The Company plans for its initial digital power amplifier product lineup to
include models for a variety of applications including cellular telephones,
wireless networking applications and multi-band and/or multi-mode applications.
The Company's first IC's, which it expects to provide to potential customers in
sample form early in the second half of 2005, will be for applications up to
3GHz frequencies. The Company has plans to extend the technology for
applications up to 6GHz frequencies.
6
Marketing and Sales
The Company currently promotes and sells its WLAN end-user products in the
United States and Canada through traditional retailers, online retailers, value
added resellers ("VARs") and direct through the Company's own online store. The
Company's products are carried in approximately 300 traditional retail locations
throughout the United States, the largest of which is CompUSA. The Company sells
direct to Micro Center and TigerDirect.com. The majority of the remaining
traditional retailers and online retailers are fulfilled through a wholesale
distributor, Wynit, Inc.
The Company works directly with its retail channel on market development
activities including co-advertising, in-store promotions and demonstrations,
sales associate training and web advertising. The Company manages its retail
sales and marketing efforts through a combination of in-house staff and outside
manufacturer's representatives. The Company is currently exploring additional
retail channels for commercial product distribution in the US and Canada.
In addition to its retail branded products efforts, the Company is currently
expanding its in-house sales staff focused on OEM and ODM opportunities for its
radio transceivers and its recently introduced power amplifier products. The
Company intends to promote its OEM/ODM products to companies worldwide.
Competition
The Company operates in a highly competitive industry. The Company's WLAN
products compete with product offerings from a number of companies with
established brand recognition and distribution channels. The Company's principal
competitors include the Linksys division of Cisco Systems, D-Link, Netgear, and
Belkin. Most of these competitors offer a broader range of products and at
prices similar to or lower than that of the Company's products. Most of the
Company's competitors have substantially greater financial, technical and sales
and marketing resources. As a result, they have larger distribution channels,
stronger brand recognition, and a broader access to customers than the Company.
The Company believes that its ability to compete with retail, branded products
is highly dependent upon its ability to build brand recognition and
distribution. The Company seeks competitive advantage based on product
performance. The Company also believes it has competitive strengths in its
in-house, US based technical support team and its willingness to back its
performance claims with a 30-day money-back guarantee.
With regard to sales of its integrated circuits, the Company also faces
competition from well-established companies in the industry including RF
MicroDevices, Anadigics, Maxim, Conexant, Skyworks, Raytheon, Texas Instruments,
and Philips, among others. In this market, the Company plans to compete based on
product performance, system cost, and the strength of its intellectual property.
Production and Supply
The Company manufactures certain of its products and subassemblies at its
Jacksonville, Florida facility. The Company's operations involve inspection of
components, assembly of the products' electronic circuitry and other components,
a series of quality specification measurements, and various other computer,
visual, and physical tests to certify final performance specifications, and
packaging. The Company has sufficient production capacity to satisfy increased
demand for the foreseeable future. In addition, the Company believes the
production processes for its products could be assumed by third-party
manufacturers, if necessary, to satisfy additional capacity requirements.
7
For certain of its products, the Company manufactures the radio subassembly
which is then provided to an outside manufacturer for completion of the product.
The Company currently has a relationship with a Taiwanese manufacturer for
production of certain WLAN products. As the Company expands its product line, it
may enter into outsourced product manufacturing arrangements with others for its
wireless networking and cordless phone products.
The components utilized in the Company's manufacturing operations include D2D
transceiver chips and other third-party chips and components. The Company's
D2D-based transceiver chips are currently produced under a foundry relationship
with Texas Instruments. The Company depends on Texas Instruments to satisfy
performance and quality specifications and dedicate sufficient capacity for
production of chips within scheduled delivery times. The Company endeavors to
mitigate the potential adverse effect of supply interruptions by maintaining an
adequate supply of its chips and by developing relationships with additional
foundries. In March 2005, the Company announced that its new power amplifier
IC's will be produced by IBM Microelectronics. Failure or delay by a foundry to
supply chips to the Company, failure or delay by a foundry in meeting the
performance or quality specifications, or changes to the foundry process
specifications would adversely affect the Company's ability to obtain and
deliver chips on a timely and competitive basis.
The other component parts of the Company's products are obtained from
third-party manufacturers and/or distributors. The Company depends upon these
third party suppliers for various critical components to its products, including
baseband/mac chips and antennas, among others. The Company mitigates the
potential adverse effect of supply interruptions by maintaining sufficient
on-hand quantities of long lead-time components. In addition, the Company has
recently established inventory management programs with certain key component
distributors allowing for maintenance of lower on-hand quantities while ensuring
adequate production supply. Where applicable, the Company attempts to enter into
licensing or other arrangements whereby the Company secures access to the
underlying component technologies to protect against supply interruption. This
strategy not only secures supply of current components, it also allows the
Company the ability to enhance existing technologies for use in its future
products. To date, the Company has entered into such licensing arrangements for
baseband/mac WLAN chips and antennas.
At December 31, 2004, the Company maintained an inventory of system components
of approximately $1.8 million.
PATENTS AND TRADEMARKS
The Company considers its intellectual property, including patents, patent
applications and trademarks, to be significant to the competitive positioning of
its business. The Company has a program to file applications for and obtain
patents, copyrights, and trademarks in the United States and in selected foreign
countries where it believes filing for such protection is appropriate to
establish and maintain its proprietary rights in its technology and products.
The Company has obtained 59 patents related to its D2D technology and has over
90 patent applications pending in the United States and other countries. The
Company estimates the economic life of its patents to be fifteen to twenty
years.
8
GOVERNMENT REGULATION
The Company utilizes wireless communications in its products. These wireless
communications utilize infrared and radio frequency technology that is subject
to regulation by the Federal Communications Commission ("FCC") in the United
States and similar government agencies in foreign countries. The Company has
obtained, is in the process of obtaining, or will obtain all licenses and
approvals necessary for the operation of its products and technologies in those
countries that it sells products. To date, the Company has not encountered any
significant inability or limitations on obtaining required material licenses.
There can be no assurance that, in the future, the Company will be able to
obtain required licenses or that the FCC or other foreign government agency will
not require the Company to comply with more stringent licensing requirements.
Failure or delay in obtaining required licenses would have a material adverse
effect on the Company. In addition, expansion of the Company's operations into
certain foreign markets may require the Company to obtain additional licenses
for its products. Amendments to existing statutes and regulations, adoption of
new statutes and regulations and the Company's expansion into foreign
jurisdictions, could require the Company to alter methods of operations at costs
that could be substantial, which could have an adverse effect on the Company.
There can be no assurance that the Company will be able, for financial or other
reasons, to comply with applicable laws and regulations and licensing
requirements.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 2004, 2003 and 2002, the Company spent
approximately $11.4 million, $13.3 million and $12.1 million, respectively, on
research and development for continuing operations. The Company's research and
development efforts have been devoted to the development of the D2D technology
and related technologies and products.
EMPLOYEES
As of December 31, 2004, the Company had 95 full-time employees, of which 16 are
employed in manufacturing, 38 in engineering research and development, 11 in
sales and marketing, 10 in product training and support, and 20 in executive
management, finance and administration. None of the Company's employees is
represented by a labor union. The Company considers its employee relations
satisfactory.
Since 2002, the Company has outsourced its human resource functions to ADP
TotalSource ("ADP"). ADP, a division of Automatic Data Processing, is a
professional employer organization that co-employs over 70,000 employees
worldwide. As a co-employer, ADP assumes many of the legal and administrative
responsibilities of human resources management, health benefits, workers'
compensation, payroll, payroll tax compliance and unemployment insurance.
AVAILABLE INFORMATION AND ACCESS TO REPORTS
The Company files its annual report on Form 10-K and quarterly reports on Form
10-Q, including amendments, as well as its proxy and other reports
electronically with the Securities and Exchange Commission ("SEC"). The SEC
maintains an Internet site (http://www.sec.gov) where these reports may be
obtained at no charge. Copies of any materials filed with the SEC may also be
obtained from the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. Information on the operation of the SEC Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. Copies of these
reports may also be obtained via the Company's website
9
(http://www.parkervision.com) via the link "SEC filings". This provides a direct
link to the Company's reports on the SEC Internet site. The Company will provide
copies of this annual report on Form 10-K and the quarterly reports on Form
10-Q, including amendments, filed during the current fiscal year upon written
request to Investor Relations, 8493 Baymeadows Way, Jacksonville, Florida,
32256. These reports will be provided at no charge. In addition, exhibits may be
obtained at a cost of $.25 per page plus $5.00 postage and handling.
ITEM 2. PROPERTIES
The Company's headquarters and manufacturing operations are located in a 33,000
square foot leased facility in Jacksonville, Florida, pursuant to a lease
agreement with Jeffrey Parker, Chairman of the Board and Chief Executive Officer
of the Company, and Barbara Parker, a related party. The Company believes that
its manufacturing facility is adequate for its current and reasonably
foreseeable future needs. The Company believes that the physical capacity at its
current facility will accommodate expansion, if required.
The Company has additional leased facilities in Lake Mary and Melbourne, Florida
primarily for engineering staff. The Company believes its properties are in good
condition and suitable for the conduct of its business.
The Company previously had wireless design operations in a leased facility in
Pleasanton, California. Although the operations at this facility ceased in 2001,
the Company has a remaining a lease obligation through March 2005. For the year
ended December 31, 2002, the remaining estimated future lease obligation for the
Pleasanton facility was charged to general and administrative expense. In
January 2004, the Company entered into a sublease for the facility that
partially reduced its remaining lease obligation.
The Company leases a facility in Los Angeles, California that was previously
utilized for video division training and sales demonstrations that has a lease
term through May 2005. Due to the sale of the video division, the remaining
estimated future lease obligation for this facility was charged to discontinued
operations in the 2004 Consolidated Statement of Operations.
Refer to "Lease Commitments" in Footnote 13 to the Consolidated Financial
Statements included in Item 8 for information regarding the Company's
outstanding lease obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims arising in the ordinary
course of its business. The Company, based upon the advice of outside legal
counsel, believes that the final disposition of such matters will not have a
material adverse effect on its financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is traded under the symbol PRKR on the Nasdaq
National Market ("Nasdaq"), which is the principal market for the common stock.
Listed below is the range of the high and low bid prices of the common stock for
the last three fiscal years, as reported by Nasdaq. The amounts represent
inter-dealer quotations without adjustment for retail markups, markdowns or
commissions and do not necessarily represent the prices of actual transactions.
2004 2003 2002
--------------------------- --------------------------- ---------------------------
High Low High Low High Low
------------ ----------- ----------- ----------- ----------- -----------
1st Quarter $10.090 $5.450 $9.200 $4.080 $21.790 $17.400
2nd Quarter 7.029 4.000 10.900 5.060 24.850 15.520
3rd Quarter 5.889 3.450 8.470 6.000 18.950 11.160
4th Quarter 9.199 3.890 12.300 7.510 13.990 6.669
HOLDERS
As of March 2, 2005, there were 158 holders of record. The Company believes
there are at least 1,886 beneficial holders of the Company's common stock.
DIVIDENDS
To date, the Company has not paid any dividends on its common stock. The payment
of dividends in the future is at the discretion of the board of directors and
will depend upon the Company's ability to generate earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not intend to declare any dividends in the foreseeable future, but instead
it intends to retain all earnings, if any, for use in the Company's business.
SALES OF UNREGISTERED SECURITIES
If option, warrant or
Consideration received and Exemption convertible security,
description of underwriting from terms
Number or other discounts to market registration of exercise or
date of sale Title of security sold price afforded to purchasers claimed conversion
- ------------- -------------------- ----------- ------------------------------ ------------- ---------------------------
10/19/04 to Options to 72,000 Options granted - no 4(2) Exercisable for five
11/28/04 purchase common consideration received by years from the date the
stock granted to Company until exercise options vest, options
three employees vest over five years at
pursuant to the an exercise price ranging
2000 Plan from $4.24 to $5.82 per
share
12/21/04 Options to 3,250 Options granted - no 4(2) Exercisable for five
purchase common consideration received by years from the date of
stock granted to Company until exercise grant, options vest
seven employees immediately at an
pursuant to the exercise price of $7.55
2000 Plan per share
11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data for the Company as of
the dates and for the periods indicated. The data has been derived from the
audited consolidated financial statements of the Company. The selected financial
data should be read in conjunction with the consolidated financial statements of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The selected financial data for all prior years has been
restated to reflect the effects of discontinued operations.
For the years ended December 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues, net $ 441 $ 23 $ 0 $ 0 $ 0
Gross margin (2,854) (7) 0 0 0
Operating expenses 19,951 19,104 16,772 15,829 15,067
Interest and other income 217 476 905 1,741 1,949
Loss from continuing
operations (22,588) (18,635) (15,867) (14,088) (13,118)
Gain (loss) from discontinued
operations 7,773 (3,380) (1,405) (2,522) 96
Net loss (14,815) (22,015) (17,272) (16,610) (13,022)
Basic and diluted net loss per
common share
Continuing operations (1.25) (1.21) (1.14) (1.02) (1.03)
Discontinued operations 0.43 (0.22) (0.10) (0.18) *
Total basic and diluted net loss
per common share (0.82) (1.43) (1.24) (1.20) (1.03)
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 28,081 $ 42,483 $ 37,745 $ 54,144 $ 63,468
Shareholders' equity 24,758 39,399 34,047 50,547 60,020
Working capital 10,471 23,225 18,992 36,161 45,460
* less than one cent
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The Company believes that the following are the critical accounting policies
affecting the preparation of its consolidated financial statements:
12
REVENUE RECOGNITION
Revenue from product 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. 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 under Emerging
Issues Task Force, (EITF) Issue 01-19, to derive net revenue.
INVENTORY VALUATION
Inventories are stated at the lower of cost (as determined under the first-in,
first-out method) or market (net realizable value). Cost includes the
acquisition of purchased materials, labor and overhead. Purchased materials
inventory consists principally of components and subassemblies. The Company's
investment in inventory is maintained to meet anticipated future demand for its
product and the buildup of safety stock on single-source or long lead-time
components. The Company has an inventory reserve for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions indicate a permanent impairment in the
carrying value of inventory, additional write-downs may be required to reduce
inventory to estimated net realizable value. The Company recorded a $2.8 million
write down of inventory to net realizable value at December 31, 2004 (see Note 6
to the financial statements). This write down is included as a separate
deduction from gross margin in the accompanying statement of operations.
IMPAIRMENT OF LONG LIVED ASSETS
Property and equipment, patents, copyrights and other intangible assets are
amortized using the straight-line method over their estimated period of benefit,
ranging from three to twenty years. Management of the Company evaluates the
recoverability of long-lived assets periodically and takes into account events
or circumstances that warrant revised estimates of useful lives or that indicate
impairment exists. No impairments of long lived assets have been identified
during any of the periods presented.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related Interpretations. For employee
stock option grants, no stock-based employee compensation cost is reflected in
net income, as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of the grant. If
the Company applied 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", it would recognize stock based employee compensation of
$12,213,000, $14,867,000, and $20,060,000 for the years ended December 31, 2004,
2003 and 2002, respectively. The significant amount of employee-based stock
compensation is due to the substantial number of options granted under these
plans as well as the factors impacting the fair value calculation, including
high price volatility of the Company's common stock.
13
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)") which revises
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 APB. 25, and amends FASB Statement No. 95, "Statement
of Cash Flows". 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 June 15, 2005. The Company will adopt FAS 123(R) effective
July 1, 2005 on a modified prospective basis without restatement of prior
interim periods. 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.
GENERAL
The Company has made significant investments in developing its technologies and
products, the returns on which are dependent upon the generation of future
revenues for realization. The Company has not yet generated revenues sufficient
to offset its operating expenses and has used the proceeds from the sale of its
equity securities to fund its operations.
The Company anticipates increases in revenues from the sale of its wireless
technologies and products in 2005; however it does not anticipate that the
revenues will be sufficient to offset its operating expenses. For wireless
revenues to offset costs, the Company must attract additional OEM and other
customers and continue to expand its products and technologies, among other
things. The Company intends to continue to use its working capital to support
future marketing, sales and research and development activities. No assurance
can be given that such expenditures will result in increased sales, new
products, or technological advances or that the Company has adequate capital to
complete its products or gain market acceptance before requiring additional
capital.
RESULTS OF OPERATIONS FOR EACH OF THE YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002
Discontinued Operations
On May 14, 2004, the Company completed the sale of certain assets of its video
division to Thomson. The operations of the video business unit were classified
as "net gain (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 gain (loss) from discontinued operations" in the Company's
Statements of Operations. Prior to the sale, essentially all of the Company's
revenues were generated by its video division.
Net gain (loss) from discontinued operations for the years ended December 31,
2004, 2003 and 2002 below include the following components:
14
2004 2003 2002
------------ ------------ ------------
Net revenues $ 1,507,955 $ 6,717,179 $ 11,911,913
Cost of goods sold and
operating expenses 4,955,098 10,097,292 13,317,071
------------ ------------ ------------
(Loss) from operations (3,447,143) (3,380,113) (1,405,158)
Gain on sale of assets 11,220,469 0 0
------------ ------------ ------------
Gain (loss) from
discontinued operations $ 7,773,326 $ (3,380,113) $ (1,405,158)
============ ============ ============
Continuing Operations
Revenues
Revenues for the years ended December 31, 2004, 2003 and 2002 were $440,811,
$23,013 and $0, respectively. Revenues for the year ended December 31, 2004
included a $250,000 one-time previously deferred royalty payment upon
termination of a licensing agreement. The remaining revenues of the Company were
generated through sales of wireless consumer products. The Company initiated
sales of its wireless products in the fourth quarter of 2003 through direct web
sales and an e-retailer relationship with TigerDirect.com. During the third
quarter of 2004, the Company expanded its product distribution to additional
retail outlets. The Company currently has products in approximately 300 retail
storefronts. For the year ended December 31, 2004, TigerDirect.com accounted for
18% of total net product revenues.
Revenue from product 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 December 31, 2004, 2003 and 2002, the Company has
deferred revenue from product sales in the distribution channel of $407,403, $0
and $0, 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. Revenues for the period ended December 31, 2004,
2003 and 2002 are net of an allowance for sales returns of $97,958, $74,097, and
$0, respectively.
In addition to the reserve for sales returns, gross revenue is reduced for price
protection programs, customer rebates and cooperative marketing costs deemed to
be sales incentives under Emerging Issues Task Force, (EITF) Issue 01-19, to
derive net revenue. For the years ended December 31, 2004, 2003 and 2002, net
revenue was reduced for cooperative marketing costs in the amount of $233,201,
$0, and $0, respectively.
The Company's ability to increase wireless product revenues will largely depend
upon the rate at which the Company is able to secure additional distribution
channels, increase brand recognition and customer demand for its products and
sufficiently increase production volumes to meet such demand. The Company's
longer term strategy includes the sale of chips, chipsets and/or modules to OEM
15
customers for integration into their 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 years ended December 31
were as follows:
2004 2003 2002
------------ ------------ ------------
Products $ (3,103,900) $ (6,640) $ 0
Royalties 250,000 0 0
------------ ------------ ------------
Total $ (2,853,900) $ (6,640) $ 0
============ ============ ============
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 the related licensing agreement.
The Company's product margin in 2004 reflects a write down of inventory to net
realizable value in the amount of $2,768,854. This write down was triggered by a
significant price decrease on the Company's 802.11b wireless networking product
line in the fourth quarter of 2004, along with the high carrying costs of
initial production inventory.
The Company reduced the suggested retail price of its wireless router product by
50% and it other wireless networking products by 20% in the fourth quarter of
2004 in order to bring its pricing more in line with competitors. As a result,
the carrying value of the Company's inventory exceeded its net realizable value
after deduction of estimated costs to complete and dispose of the inventory.
Product margins for 2004 compared to 2003 also reflect the impact of increases
in the Company's provision for obsolete inventory that is included in cost of
goods sold as well as increases in direct channel marketing costs that are
classified as a reduction in revenue.
The Company believes its next generation 802.11g wireless networking products
will be produced at significantly lower manufactured cost than its current
product line. However until introduction and sell through of these new products,
expected late in the second quarter of 2005, the Company will continue to sell
its 802.11b products at a price approximately equal to the carrying value of the
inventory. As a result, the Company does not anticipate generating positive
margin dollars on its product sales until introduction of its next generation
products.
Gross margin may be negatively impacted in future periods by many factors,
including fluctuating component costs, start-up costs associated with new
product introductions, sales price reductions on products, and channel marketing
costs which are netted against revenue. 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 decreased by $1,894,778 or 14%,
from $13,317,479 to $11,422,701 in 2004. The Company's research and development
expenses increased by approximately $1,192,725 or 10%, from $12,124,754 in 2002
to $13,317,479 in 2003.
16
The decrease in research and development expenses from 2003 to 2004 was
primarily due to the Company's ability to obtain, through third parties, certain
technologies previously being developed internally by the Company. This resulted
in a reduction in wireless engineering staff late in the third quarter of 2003,
as well as a reduction in certain third-party development fees. In addition, the
Company's wireless prototype foundry expenses decreased from 2003 to 2004,
largely due to timing of prototype foundry runs and related foundry costs. These
decreases were somewhat offset by an increase in amortization expense due to
increases in patent costs and intangible research and development assets.
The increase in research and development expenses from 2002 to 2003 was due to
an increase in third party development fees and increased wireless prototype
chip development expenses including foundry costs and amortization of prepaid
licenses fees. These increases were somewhat offset by decreases in facilities
cost and recurring software maintenance costs. The Company made reductions in
its wireless engineering staffing late in the third quarter of 2003. Due to
severance costs and the timing of staff reductions, the full benefits of these
reductions were not evident through decreases in research and development
expenses until 2004.
The markets for the Company's products and technologies are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. The Company's ability to successfully develop and
introduce, on a timely basis, new and enhanced products and technologies will be
a significant factor in the Company's ability to grow and remain competitive.
Although the percentage of revenues invested by the Company may vary from period
to period, the Company is committed to investing in its research and development
programs. The Company anticipates it will use a substantial portion of its
working capital for research and development activities in 2005.
Marketing and Selling Expenses
Marketing and selling expenses increased by $1,484,191 or 148%, from $999,998 in
2003 to $2,484,189 in 2004. Marketing and selling expenses increased by $309,836
or 45% from $690,162 in 2002 to $999,998 in 2003.
The increase in marketing and selling expenses from 2003 to 2004 were primarily
due to increases in advertising and retail market launch expenses to promote the
Company's products and also the addition of marketing and customer support
personnel. The Company anticipates marketing and selling expenses to increase in
relation to increases in future sales and revenues.
The increase in marketing and selling expenses from 2002 to 2003 is primarily
due to an increase in the Company's marketing efforts reflected by increased
third party consulting fees, advertising and travel expenses.
The Company is committed to continuing its investment in marketing and selling
efforts in order to continue to increase market awareness and penetration of its
products, and anticipates further increases in sales and marketing expenses in
2005 to support the Company's commercialization of its D2D products.
General and Administrative Expenses
The Company's general and administrative expenses increased by $1,341,898 or
29%, from $4,702,563 in 2003 to $6,044,461 in 2004. The Company's general and
administrative expenses increased by $745,377 or 19%, from $3,957,186 in 2002 to
$4,702,563 in 2003. General and administrative expenses consist primarily of
17
executive and administrative personnel costs, insurance costs and costs incurred
for outside professional services.
The increase in general and administrative expenses from 2003 to 2004 is
primarily due to increases in corporate outside professional fees and personnel
costs, offset somewhat by decreases in corporate insurance costs. The increase
in professional fees incurred is due to fees from outside consultants and the
Company's external auditors in conjunction with the internal control evaluation
as required by Section 404 of the Sarbanes Oxley Act of 2002.
The increase in general and administrative expenses from 2002 to 2003 is
primarily due to increases in insurance costs and professional fees, including
amortization of prepaid services.
Other Expense
Other expense consists of losses on the disposal or sale of fixed assets no
longer in service. For 2003, the loss of $84,007 is due to the sale of an
interest in an aircraft.
Interest and Other Income
Interest and other income represents interest earned on the Company's investment
of the proceeds from sales of its equity securities and net gains on the sale
and/or maturity of investments. Interest and other income was $217,382,
$476,002, and $905,438 for the years ended December 31, 2004, 2003, and 2002,
respectively. The decrease of $258,620 from 2003 to 2004 is due to the use of
funds to support operations and a decline in interest rates due to a change in
the mix of the Company's investment portfolio. The decrease of $429,436 from
2002 to 2003 is due to declining interest rates and the use of funds to support
operations, offset somewhat by net gains recognized on the sale of investments.
Loss and Loss per Common Share
The Company's net loss decreased from $22,014,798 or $1.43 per common share in
2003 to $14,814,543 or $0.82 per share in 2004, representing a net loss decrease
of $7,200,255 or $0.61 per common share. The Company's net loss increased from
$17,271,822, or $1.24 per common share in 2002 to $22,014,798, or $1.43 per
share in 2003, representing a net loss increase of approximately $4,742,976, or
$.19 per common share.
The results of operations are as follows:
2004 2003 2002
------------ ------------ ------------
Loss from continuing operations $(22,587,869) $(18,634,685) $(15,866,664)
Gain (loss) from discontinued
operations 7,773,326 (3,380,113) (1,405,158)
------------ ------------ ------------
Net loss $(14,814,543) $(22,014,798) $(17,271,822)
============ ============ ============
The $7.2 million decrease in net loss from 2003 to 2004 is primarily due to the
net gain on the sale of the video business unit assets and decreased research
and development expenses. The $4.7 million increase from 2002 to 2003 is due to
increased research and development expenses from continuing operations and
increased operating losses from discontinued operations.
18
Liquidity and Capital Resources
At December 31, 2004, the Company had working capital of approximately
$10,471,000 including approximately $7,798,000 in cash, cash equivalents and
short-term investments. The Company used cash for operating activities of
approximately $21,809,000, $16,507,000 and $14,187,000 for the years ended
December 31, 2004, 2003, and 2002, respectively. The increase in cash used for
operating activities from 2003 to 2004 was approximately $5,302,000. This
increase was primarily due to purchases of inventory components for initial
production of wireless networking products and increases in selling, general and
administrative expenses from 2003 to 2004. The Company's accounts payable and
accrued expenses, in aggregate, increased from $1,857,000 at December 31, 2003
to $2,915,000 at December 31, 2004. This increase of approximately $1,058,000 is
primarily due to accrued channel marketing costs, timing of payments on accounts
payable and an increase in wages payable as a result of a change in the
Company's vacation policy and certain executive bonus accruals at December 31,
2004.
The increase in cash used for operating activities from 2002 to 2003 was
approximately $2,320,000. This increase is due to the increase in net loss and
changes in accounts payable, offset somewhat by changes in accounts receivable.
The Company generated cash from investing activities of approximately
$10,776,000, $8,742,000, and $10,210,000 for the years ended December 31, 2004,
2003, and 2002, respectively. The cash generated for 2004 is primarily from the
proceeds of the sale of the video business unit assets and maturity of
investments, offset somewhat by payment for patent costs and other intangible
assets. The generation of cash for 2003 and 2002 was primarily from the maturity
and sale of investments, net of purchases, and the payment for intangible assets
and capital expenditures.
The Company incurred approximately $1,953,000 in 2004 in connection with patent
costs and the purchase of other intangible assets for use in future products.
The Company incurred approximately $1,176,000 and $1,556,000, in connection with
patent costs primarily related to the Company's wireless technology in 2003 and
2002, respectively. The Company incurred approximately $996,000, $1,173,000, and
$1,319,000, for capital expenditures in 2004, 2003, and 2002, respectively.
These capital expenditures primarily represent the purchase of certain research
and development software and test equipment, manufacturing equipment, marketing
and sales demonstration equipment and computer and office equipment to support
additional personnel. At December 31, 2004, the Company was not subject to any
significant commitments to make additional capital expenditures.
The Company generated no cash from financing activities for the year ended
December 31, 2004. The Company generated cash from financing activities of
approximately $24,145,000 and $501,000, for the years ended December 31, 2003
and 2002, respectively. The cash generated from financing activities represents
proceeds from the exercise of stock options in both years and proceeds from the
issuance of common stock in 2003 to institutional and other investors in private
placement transactions exempt from registration under the Securities Act of
1933.
The Company's future business plans call for continued investment in sales,
marketing and product development for its wireless products. The Company's
ability to increase wireless product revenues will largely depend upon the rate
at which the Company is able to secure additional distribution channels, to
increase brand recognition and customer demand for its products, and to
sufficiently increase production volumes to meet demand.
The overall revenues for 2005 will not be sufficient to cover the operational
expenses of the Company for this fiscal year. Although the Company anticipates
19
sales growth in 2005, it does not expect that sales revenues will fully offset
the expenses of operations. 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 $20.3 million from the
sale of equity securities in a private placement transaction. The Company plans
to use these proceeds, together with the $7.8 million in cash, cash equivalents
and short term investments at December 31, 2004, to fund its future business
plans. The Company believes that its current capital resources together with the
proceeds of 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.
The Company's contractual obligations and commercial commitments at December 31,
2004 were as follows:
Payments due by period
--------------------------------------------------------------
1 year 2-3 4 - 5 After 5
Contractual Obligations: Total or less years years years
---------- --------- --------- -------- -------
Operating leases 960,000 634,000 326,000 0 0
Unconditional purchase
obligations 496,000 496,000 0 0 0
Commercial Commitments 0 0 0 0 0
Risk Factors Affecting Future Results
In addition to other information in this Annual Report on Form 10-K, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. As a result of the risk factors set
forth below, actual results could differ materially from those projected in any
forward-looking statements.
WE HAVE HAD A HISTORY OF LOSSES WHICH MAY ULTIMATELY COMPROMISE OUR ABILITY TO
IMPLEMENT OUR BUSINESS PLAN AND CONTINUE IN OPERATIONS.
We have had losses in each year since our inception in 1989, and continue to
have an accumulated deficit. The net loss for 2004 was $14.8 million. To date,
our products have not produced revenues sufficient to cover operating, research
and development and overhead costs. We also will continue to make expenditures
on research and development and on pursuing patent protection for our
intellectual property. We expect that our revenues in the near term will not
bring the company to profitability. If we are not able to generate sufficient
revenues, and we have insufficient capital resources, we will not be able to
implement our business plan and investors will suffer a loss in their
investment. This may result in a change in our business strategies.
20
WE EXPECT TO NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH IF WE ARE UNABLE TO
RAISE WILL RESULT IN OUR NOT BEING ABLE TO IMPLEMENT OUR BUSINESS PLAN AS
CURRENTLY FORMULATED.
Because we have had net losses and, to date, have not generated positive cash
flow from operations, we have funded our operating losses from the sale of
equity securities from time to time. We anticipate that our business plan will
continue to require significant expenditures for research and development,
patent protection, manufacturing, marketing and general operations. Our current
capital resources are expected to sustain operations for at least the next
twelve months. Thereafter, unless we increase revenues to a level that they
cover operating expenses or we reduce costs, we will require additional capital
to fund these expenses. Financing, if any, may be in the form of loans or
additional sales of equity securities. A loan or the sale of preferred stock may
result in the imposition of operational limitations and other covenants and
payment obligations, any of which may be burdensome to the Company. The sale of
equity securities will result in dilution to the current stockholders'
ownership.
OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES WHICH IF WE ARE UNABLE TO
MATCH OR SURPASS, WILL RESULT IN A LOSS OF COMPETITIVE ADVANTAGE AND MARKET
OPPORTUNITY.
Because of the rapid technological development that regularly occurs in the
microelectronics industry, we must continually devote substantial resources to
developing and improving our technology and introducing new product offerings
and creating new products. For example, in fiscal year 2004, we spent
approximately $11.4 million on research and development, and we expect to
continue to spend a significant amount in this area in the future. These efforts
and expenditures are necessary to establish and increase market share and,
ultimately, to grow revenues. If another company offers better products or our
product development lags, a competitive position or market window opportunity
may be lost, and therefore our revenues or revenue potential may be adversely
affected.
IF OUR PRODUCTS ARE NOT COMMERCIALLY ACCEPTED, OUR DEVELOPMENTAL INVESTMENT WILL
BE LOST AND OUR FUTURE BUSINESS CONTINUATION WILL BE IMPAIRED.
There can be no assurance that our research and development will produce
commercially viable technologies and products. If new technologies and products
are not commercially accepted, the funds expended will not be recoverable, and
our competitive and financial position will be adversely affected. In addition,
perception of our business prospects will be impaired with an adverse impact on
our ability to do business and to attract capital and employees.
FAILING TO ACHIEVE MARKET ACCEPTANCE OF OUR D2D TECHNOLOGY WILL RESULT IN AN
ADVERSE IMPACT ON OUR BUSINESS PROSPECTS AND COMPROMISE THE MARKET VALUE OF THE
TECHNOLOGY.
Our wireless technology represents what we believe to be a significant change in
the circuit design of wireless radio-frequency communications. To achieve market
acceptance, we will need to demonstrate the benefits of our technology over more
traditional solutions through the development of marketable products and
aggressive marketing. In many respects, because the D2D technology is a
radically different approach in its industry, it is very difficult for us to
predict the final economic benefits to users of the technology and the financial
rewards that we might expect. If the D2D technology is not established in the
market place as an improvement over current, traditional solutions in wireless
communications, our business prospects and financial condition will be adversely
affected.
21
IF OUR PATENTS AND INTELLECTUAL PROPERTY DO NOT PROVIDE US WITH THE ANTICIPATED
MARKET PROTECTIONS AND COMPETITIVE POSITION, OUR BUSINESS AND PROSPECTS WILL BE
IMPAIRED.
We rely on our intellectual property, including patents and patent applications,
to provide competitive advantage and protect us from theft of our intellectual
property. We believe that many of our patents are for entirely new technologies.
If the patents are not issued or issued patents are later shown not to be as
broad as currently believed or otherwise challenged such that some or all of the
protection is lost, we will suffer adverse effects from the loss of competitive
advantage and our ability to offer unique products and technologies. In
addition, there would be an adverse impact on the Company's financial condition
and business prospects.
IF WE DO NOT COMPLY WITH THE APPROVAL REQUIREMENTS OF THE FEDERAL COMMUNICATIONS
COMMISSION IN RESPECT OF OUR PRODUCTS, WE WILL NOT BE ABLE TO MARKET THEM WITH A
RESULTING LOSS OF BUSINESS AND PROSPECTS.
We must obtain approvals from the United States Federal Communications
Commission for the regulatory compliance of our products in the United States.
We also may have to obtain approvals from equivalent foreign government agencies
where our products are sold internationally. Currently, we have obtained all
required approvals. Generally the approval process is routine and takes from one
to two months without substantial expense. In the event, however, that approval
is not obtained, or there is a change in current regulation that impacts issued
approvals or the approval process, there may be an impact on our ability to
market products and on our business prospects.
IF WE CANNOT DEMONSTRATE THAT OUR D2D PRODUCTS CAN COMPETE IN THE MARKETPLACE
AND ARE BETTER THAN CURRENT ELECTRONICS SOLUTIONS, THEN WE WILL NOT BE ABLE TO
GENERATE THE SALES WE NEED TO CONTINUE OUR BUSINESS AND OUR PROSPECTS WILL BE
IMPAIRED.
In respect of the current product offerings, we now face competition from other
finished product suppliers such as the Linksys division of Cisco, Netgear,
Belkin and D-Link. We also face competition from chip suppliers such as RF
MicroDevices, Anadigics, Maxim and Conexant, among others. Our technology may
also face competition from other emerging approaches or new technological
advances which are under development and have not yet emerged.
WE OBTAIN CRITICAL COMPONENTS FOR OUR PRODUCTS FROM VARIOUS SUPPLIERS AND
LICENSORS, SOME OF WHICH ARE SINGLE SOURCES, WHICH MAY PUT US AT RISK IF THEY DO
NOT FULFILL OUR REQUIREMENTS OR THEY INCREASE PRICES THAT CANNOT BE PASSED ON.
We obtain critical components from various suppliers and licensors, some of
which are single sources. Because we depends on outside sources for supplies and
licenses of various parts of its products, we are at risk that we may not obtain
these components on a timely basis or may not obtain them at all. We maintain
inventories of many components, and to date, have not experienced any
significant problems with respect to obtaining components. In addition, we have
neither ended or had terminated any supply arrangements or license of critical
components where an alternative has not been readily available. Notwithstanding
our past history of supplies, maintaining inventory of some components and
having licenses to produce in the event of non-supply, if we are unable to
obtain needed components, our business would be disrupted, and we would have to
expend some of our resources to modify our products or find new suppliers and
work with them to develop appropriate components. We are also at risk for
increases in prices imposed by sources over which we have no control. Our
inability to obtain components or absorb price increases may have an adverse
effect on our own ability to fulfill orders and on our financial condition.
WE BELIEVE THAT WE WILL RELY, IN LARGE PART, ON KEY BUSINESS AND SALES
RELATIONSHIPS FOR THE SUCCESSFUL COMMERCIALIZATION OF OUR D2D TECHNOLOGY, WHICH
22
IF NOT DEVELOPED OR MAINTAINED, WILL HAVE AN ADVERSE IMPACT ON ACHIEVING MARKET
AWARENESS AND ACCEPTANCE AND LOSS OF BUSINESS OPPORTUNITY.
To achieve a wide market awareness and acceptance of our D2D technology, as part
of our business strategy, we will attempt to enter into a variety of business
relationships with other companies which will incorporate the D2D technology
into their products and/or market products based on D2D technology through
retail or direct marketing channels. These will include OEM and VAR
relationships and sales through internet and storefront retailers. These
commercialization avenues are in addition to the direct marketing that we are
engaged in through our own website. Our successful commercialization of the D2D
technology will depend in part on our ability to meet obligations under
contracts in respect to the D2D technology and related development requirements
and the other parties using the D2D technology as agreed. The failure of the
business relationships will limit the commercialization of our D2D technology
which will have an adverse impact on our business development and our ability to
generate revenues and recover development expenses.
AS WE INCREASE OUR MARKETING EFFORTS, WE WILL BECOME MORE RELIANT ON THE SALES
EFFORTS OF THIRD PARTIES THAT MAY AFFECT REVENUES.
As we increase our consumer product offerings, we will seek various kinds of
distribution and sales methodologies which rely on third parties. These will
include OEM, VAR, internet resellers and standard retail outlets. To service
these sales methods, we will have to maintain inventory and supply sufficient
quantities of products to the sales outlets. Therefore, we will have an
increased exposure in its inventory quantities and investment and warranty
obligations. We also will have to oversee the sales efforts of these outlets to
maintain pricing structures, advertising and sales quality and servicing and
warranty claims. If we are unable to supply our sales channels or the third
parties sell or act in ways that harm our image, market acceptance of our
products may be adversely affected with a resulting loss in sales and revenues.
MARKETING OF OUR PRODUCTS WILL REQUIRE EXPANSION OF OUR MARKETING STAFF AND
ESTABLISHING MARKETING PROGRAMS, WHICH IF NOT EFFECTIVE, MAY RESULT IN LIMITED
SALES.
We have initiated consumer sales of various products. To do this effectively and
reach the mass market for electronic products, we will need to expand our sales
staff and marketing programs. If we are unable to find effective sales personnel
or establish effective sales programs, we will not be able to fully realize our
product offerings or grow sales. A slower growth of sales or the harmful effects
of poor marketing could increase expenses and may adversely affect sales and
revenues.
WE HAVE LIMITED EXPERIENCE IN THE COMMERCIAL DESIGN AND LARGE SCALE
MANUFACTURING OF CONSUMER PRODUCTS THAT MAY RESULT IN PRODUCTION INADEQUACIES,
DELAYS AND REJECTION.
We have limited experience in the commercial design and large scale
manufacturing of consumer electronic products. From time to time we have
experienced delays in starting production and maintaining production amounts at
the quality levels necessary for our products. We outsource the manufacture of
certain components and will outsource some of our future consumer products. If
there are design flaws or manufacturing errors resulting from our inexperience
or by the third party manufacturers, there may be resulting delays while they
are corrected. In addition, using others to manufacture on our behalf exposes us
to timing, quality and delivery risks. The failure to produce adequate numbers
of products, at the quality levels expected by our customers, may result in the
loss of acceptance of our consumer products, or result in excessive returns and
warranty claims. These may result in loss of commercialization opportunities as
well as adversely affect revenues and cause additional, unanticipated expenses.
23
UNTIL WE ARE ABLE TO SELL PRODUCT IN LARGE VOLUMES, OUR MANUFACTURING AND SALES
EXPENSES PER UNIT WILL HAVE AN ADVERSE IMPACT ON GROSS MARGINS.
New products offerings may be manufactured in low quantities resulting in higher
per unit costs to produce. These costs will reduce gross margins. It is possible
that the costs to produce may not be fully recoverable resulting in write downs
of inventory. This will have a negative impact on our financial condition and
results of operations.
WE ARE HIGHLY DEPENDENT ON MR. JEFFERY PARKER AS OUR CHIEF EXECUTIVE OFFICER
WHOSE SERVICES, IF LOST, WOULD HAVE AN ADVERSE IMPACT ON THE LEADERSHIP OF THE
COMPANY AND INDUSTRY AND INVESTOR PERCEPTION ABOUT OUR FUTURE.
Because of Mr. Parker's position in the company and the respect he has garnered
in the industries in which we operate and from the investment community, the
loss of the services of Mr. Parker might be seen as an impediment to the
execution of the our business plan. If Mr. Parker were no longer available to
the company, investors may experience an adverse impact on their investment. Mr.
Parker has an employment contract that expires in September 2005. We maintain
key-employee life insurance for our benefit on Mr. Parker.
IF WE ARE UNABLE TO ATTRACT THE HIGHLY SKILLED EMPLOYEES WE NEED FOR RESEARCH
AND DEVELOPMENT AND SALES AND SERVICING, IT WILL NOT BE ABLE TO EXECUTE ITS
RESEARCH AND DEVELOPMENT PLANS OR PROVIDE THE HIGHLY TECHNICAL SERVICES THAT OUR
PRODUCTS REQUIRE.
Our business is very specialized, and therefore it is dependent on having
skilled and specialized employees to conduct our research and development
activities, manufacturing, marketing and support. The inability to obtain these
kinds of persons will have an adverse impact on our business development because
persons will not obtain the information or services expected in the markets and
may prevent us from successfully implementing our current business plans.
THE OUTSTANDING OPTIONS AND WARRANTS MAY AFFECT THE MARKET PRICE AND LIQUIDITY
OF THE COMMON STOCK.
At December 31, 2004, we had 18,006,324 shares of common stock outstanding and
had 5,390,218 exercisable options and warrants for the purchase shares of common
stock. On December 31, 2005 and 2006, there will be 6,387,050 and 6,642,460,
respectively of the currently outstanding options and warrants exercisable. All
of the underlying common stock of these securities is or will be registered for
sale to the holder or for public resale by the holder. The amount of common
stock available for the sales may have an adverse impact on our ability to raise
capital and may affect the price and liquidity of the common stock in the public
market. In addition, the issuance of these shares of common stock will have a
dilutive effect on current stockholders' ownership.
PROVISIONS IN THE CERTIFICATE OF THE INCORPORATION AND BY-LAWS COULD HAVE
EFFECTS THAT CONFLICT WITH THE INTEREST OF STOCKHOLDERS.
Some provisions in our certificate of incorporation and by-laws could make it
more difficult for a third party to acquire control. For example, the board of
directors has the ability to issue preferred stock without stockholder approval,
and there are pre-notification provisions for director nominations and
submissions of proposals from stockholders to a vote by all the stockholders
under the by-laws. Florida law also has anti-takeover provisions in its
corporate statute.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
24
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 26
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - December 31, 2004 and 2003 28
Consolidated Statements of Operations - for the years ended
December 31, 2004, 2003 and 2002 29
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 2004, 2003 and 2002 30-31
Consolidated Statements of Cash Flows - for the years ended
December 31, 2004, 2003 and 2002 32
Notes to Consolidated Financial Statements - December 31, 2004, 2003
and 2002 33-52
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 59
Schedules other than those listed have been omitted since they are either not
required, not applicable or the information is otherwise included.
25
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of ParkerVision, Inc.:
We have completed an integrated audit of ParkerVision, Inc.'s 2004 consolidated
financial statements and of its internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
ParkerVision, Inc. and its subsidiary at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004 based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
26
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Jacksonville, Florida
March 16, 2005
27
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
2004 2003
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,434,901 $ 17,467,875
Short-term investments available for sale 1,363,571 3,008,427
Accounts receivable, net of allowance for doubtful accounts of
$19,164 and $64,159 at December 31, 2004
and 2003, respectively 310,400 988,849
Interest and other receivables 1,277,497 54,407
Inventories, net 2,625,763 2,476,985
Prepaid expenses and other current assets 1,781,595 2,312,385
------------- -------------
Total current assets 13,793,727 26,308,928
PROPERTY AND EQUIPMENT, net 3,372,894 4,860,261
OTHER ASSETS, net 10,914,017 11,313,621
------------- -------------
Total assets 28,080,638 42,482,810
============= =============
CURRENT LIABILITIES:
Accounts payable 857,954 693,820
Accrued expenses:
Salaries and wages 1,130,860 592,369
Warranty reserves 4,853 199,084
Professional fees 202,787 143,893
Purchase commitments 194,000 0
Other accrued expenses 524,930 228,057
Deferred revenue 407,403 1,226,929
------------- -------------
Total current liabilities 3,322,787 3,084,152
------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 3, 13 and 16) -- --
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized, 18,006,324
and 17,959,504 shares issued and outstanding at December 31, 2004 and
2003, respectively 180,063 179,595
Warrants outstanding 14,573,705 16,807,505
Additional paid-in capital 120,488,205 118,048,964
Accumulated other comprehensive (loss) income (427) 31,746
Accumulated deficit (110,483,695) (95,669,152)
------------- -------------
Total shareholders' equity 24,757,851 39,398,658
------------- -------------
Total liabilities and shareholders' equity $ 28,080,638 $ 42,482,810
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
28
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002
------------ ------------ ------------
Product revenue $ 190,811 $ 23,013 $ 0
Royalty revenue 250,000 0 0
------------ ------------ ------------
Net revenues 440,811 23,013 0
Cost of goods sold 525,857 29,653 0
Write down of inventory to net realizable value 2,768,854 0 0
------------ ------------ ------------
Gross margin (2,853,900) (6,640) 0
------------ ------------ ------------
Research and development expenses 11,422,701 13,317,479 12,124,754
Marketing and selling expenses 2,484,189 999,998 690,162
General and administrative expenses 6,044,461 4,702,563 3,957,186
Loss on disposal of property and equipment 0 84,007 0
------------ ------------ ------------
Total operating expenses 19,951,351 19,104,047 16,772,102
------------ ------------ ------------
Interest and other income 217,382 476,002 905,438
------------ ------------ ------------
Loss from continuing operations (22,587,869) (18,634,685) (15,866,664)
Gain (loss) from discontinued operations (including
gain on the disposal of $11,220,469 in 2004) 7,773,326 (3,380,113) (1,405,158)
------------ ------------ ------------
Net loss (14,814,543) (22,014,798) (17,271,822)
Unrealized (loss) gain on investment securities (32,173) (279,123) 159,510
------------ ------------ ------------
Comprehensive loss $(14,846,716) $(22,293,921) $(17,112,312)
============ ============ ============
Basic and diluted net loss per common share:
Continuing operations $ (1.25) $ (1.21) $ (1.14)
Discontinued operations 0.43 (0.22) (0.10)
------------ ------------ ------------
Basic and diluted net loss per common share $ (0.82) $ (1.43) $ (1.24)
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
29
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002
------------ ------------ ------------
CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR 0 13,678 27,356
Conversion of preferred stock to common stock 0 (13,678) (13,678)
------------ ------------ ------------
CONVERTIBLE PREFERRED SHARES - END OF YEAR 0 0 13,678
============ ============ ============
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - BEGINNING OF
YEAR $ 0 $ 13,678 $ 27,356
Conversion of preferred stock to common stock 0 (13,678) (13,678)
------------ ------------ ------------
PAR VALUE OF CONVERTIBLE PREFERRED SHARES - END OF YEAR $ 0 $ 0 $ 13,678
============ ============ ============
COMMON SHARES - BEGINNING OF YEAR 17,959,504 13,989,329 13,913,806
Issuance of common stock upon exercise of options and
warrants 0 16,100 52,600
Issuance of restricted common stock as employee
compensation 46,820 27,778 6,291
Issuance of common stock in private offering 0 3,465,151 0
Issuance of common stock as payment for license fees and
services 0 388,158 0
Conversion of preferred stock to common stock 0 72,988 16,632
------------ ------------ ------------
COMMON SHARES - END OF YEAR 18,006,324 17,959,504 13,989,329
============ ============ ============
PAR VALUE OF COMMON STOCK - BEGINNING OF YEAR $ 179,595 $ 139,893 $ 139,138
Issuance of common stock upon exercise of options and
warrants 0 161 526
Issuance of restricted common stock as employee
compensation 468 278 63
Issuance of common stock in private offering 0 34,652 0
Issuance of common stock as payment for license fees
and services 0 3,881 0
Conversion of preferred stock to common stock 0 730 166
------------ ------------ ------------
PAR VALUE OF COMMON STOCK - END OF YEAR $ 180,063 $ 179,595 $ 139,893
============ ============ ============
WARRANTS OUTSTANDING - BEGINNING OF YEAR $ 16,807,505 $ 16,807,505 $ 16,807,505
Expiration of warrants (2,233,800) 0 0
------------ ------------ ------------
WARRANTS OUTSTANDING - END OF YEAR $ 14,573,705 $ 16,807,505 $ 16,807,505
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
30
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002
------------- ------------- -------------
ADDITIONAL PAID-IN CAPITAL - BEGINNING OF YEAR $ 118,048,964 $ 90,428,998 $ 89,804,504
Issuance of common stock upon exercise of options and
warrants 0 136,881 500,059
Issuance of restricted common stock as employee
compensation 205,441 129,846 110,923
Issuance of common stock in private offering 0 23,994,172 0
Issuance of common stock as payment for license fees
and services 0 3,346,119 0
Conversion of preferred stock to common stock 0 12,948 13,512
Expiration of warrants 2,233,800 0 0
------------- ------------- -------------
ADDITIONAL PAID-IN CAPITAL - END OF YEAR $ 120,488,205 $ 118,048,964 $ 90,428,998
============= ============= =============
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME - BEGINNING
OF YEAR $ $ 310,869 $ 151,359
31,746
Change in unrealized (loss) gain on investments (32,173) (279,123) 159,510
------------- ------------- -------------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME - END OF
YEAR $ $ 31,746 $ 310,869
(427)
============= ============= =============
ACCUMULATED DEFICIT - BEGINNING OF YEAR $ (95,669,152) $ (73,654,354) $ (56,382,532)
Net loss (14,814,543) (22,014,798) (17,271,822)
------------- ------------- -------------
ACCUMULATED DEFICIT - END OF YEAR $(110,483,695) $ (95,669,152) $ (73,654,354)
============= ============= =============
TOTAL SHAREHOLDERS' EQUITY - BEGINNING OF YEAR $ 39,398,658 $ 34,046,589 $ 50,547,330
Issuance of common stock upon exercise of options and
warrants 0 137,042 500,585
Issuance of restricted common stock as employee
compensation 205,909 130,124 110,986
Issuance of common stock and warrants in private offering 0 24,028,824 0
Issuance of common stock as payment for license fees and
services 0 3,350,000 0
Comprehensive loss (14,846,716) (22,293,921) (17,112,312)
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY - END OF YEAR $ 24,757,851 $ 39,398,658 $ 34,046,589
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
31
PARKERVISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,814,543) $(22,014,798) $(17,271,822)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,101,138 2,952,475 2,950,859
Amortization of premium on investments 42,683 155,848 281,377
Provision for obsolete inventories 320,533 401,271 521,573
Write-down of inventory to net realizable value 2,768,854 0 0
Stock compensation 1,005,909 972,471 1,275,394
Gain on sale of discontinued operations (11,220,469) 0 0
Gain on sale of investments 0 (228,960) (158,482)
Loss on sale of equipment 0 84,007 51,643
Changes in operating assets and liabilities, net of
disposition:
Accounts receivable, net 758,953 1,169,728 (1,211,942)
Inventories (5,535,571) 212,628 707,082
Prepaid and other assets 105,062 402,920 (1,435,399)
Accounts payable and accrued expenses 1,261,072 (837,919) 85,028
Deferred revenue 397,845 223,463 17,854
------------ ------------ ------------
Total adjustments (6,993,991) 5,507,932 3,084,987
------------ ------------ ------------
Net cash used in operating activities (21,808,534) (16,506,866) (14,186,835)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments available for sale 0 (5,603,060) (16,786,291)
Proceeds from maturity/sale of investments 1,570,000 16,256,385 29,863,504
Proceeds from sale of video business unit assets and
other property and equipment 12,153,939 437,855 7,660
Purchase of property and equipment (995,567) (1,172,715) (1,318,947)
Payment for patent costs (1,952,812) (1,175,998) (1,556,178)
------------ ------------ ------------
Net cash provided by investing activities 10,775,560 8,742,467 10,209,748
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 24,145,241 500,585
------------ ------------ ------------
Net cash provided by financing activities 0 24,145,241 500,585
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,032,974) 16,380,842 (3,476,502)
CASH AND CASH EQUIVALENTS, beginning of year 17,467,875 1,087,033 4,563,535
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 6,434,901 $ 17,467,875 $ 1,087,033
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
32
PARKERVISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
1. THE COMPANY AND NATURE OF BUSINESS
ParkerVision, Inc. (the "Company") was incorporated under the laws of the state
of Florida on August 22, 1989. Following the sale of its video operations in May
2004 (Note 3), the Company operates in a single segment - wireless technologies
and products.
The Company operates in a highly competitive industry with rapidly changing and
evolving technologies and an increasing number of market entrants. The Company's
potential competitors have substantially greater financial, technical and other
resources than those of the Company. The Company has made significant
investments in developing its technologies and products, the returns on which
are dependent upon the generation of future revenues for realization. The
Company has not yet generated sufficient revenues to offset its expenses and,
thus, has utilized proceeds from the sale of its equity securities to fund its
operations. In March 2005, the Company received net proceeds of approximately
$20.3 million from the sale of its equity securities (Note 19). In the opinion
of management, the Company's working capital as of December 31, 2004, along with
the proceeds of the March 2005 sale of equity securities, is sufficient to meet
its liquidity needs through at least December 31, 2005. The Company also
believes it will be able to generate increased revenues and additional capital,
if necessary, to sustain its operations on a longer-term basis.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company has made substantial investment in developing the technologies for
its products, the returns on which are dependent upon the generation and
realization of future revenues. The Company has incurred losses from operations
and negative cash flows in every year since inception and has utilized the
proceeds from the sale of its equity securities to fund operations. For the year
ended December 31, 2004, the Company incurred a net loss of approximately $14.8
million and negative cash flows from operations of approximately $21.8 million.
At December 31, 2004, the Company had an accumulated deficit of approximately
$110.5 million and working capital of approximately $10.5 million. Although
management expects to generate additional revenues in 2005 from sales of its
products, it does not anticipate that these revenues will be sufficient to
offset the expenses from continued investment in product development and
marketing activities. Therefore, management expects operating losses and
negative cash flows to continue in 2005 and possibly beyond. As more fully
discussed in Note 19, in March 2005, the Company obtained equity financing that
it believes, along with existing financial resources, will allow for sufficient
liquidity to fund operations through at least 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
33
costs could be reduced if working capital decreases significantly and additional
funding is not available. In addition, the Company currently has no outstanding
long-term debt obligations. Failure to generate sufficient revenues, raise
additional capital and/or reduce certain discretionary spending could have a
material adverse effect on the Company's ability to achieve its intended
long-term business objectives.
3. 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 net book value of assets and liabilities
sold to Thomson include the following:
Patents, net of accumulated amortization of $731,890 $ 681,444
Inventories, net of reserves for obsolescence of $1,095,354 1,702,797
Furniture and equipment, net of accumulated depreciation of $913,431 584,059
Prepaids and other deposits 37,364
Deferred revenue (1,217,371)
Warranty reserves (202,911)
-----------
$ 1,585,382
===========
Inventories sold consisted of the following:
Purchased materials $ 1,069,897
Work in process 100,089
Finished goods 359,174
Spare parts and demonstration inventory 1,268,991
-----------
-----------
2,798,151
Less allowance for inventory obsolescence (1,095,354)
-----------
$ 1,702,797
===========
Property and equipment sold consisted of the following:
Manufacturing and office equipment $ 1,347,138
Tools and dies 150,352
-----------
1,497,490
Less accumulated depreciation (913,431)
-----------
$ 584,059
===========
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,
34
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.
The Company recognized a gain on the sale of discontinued operations 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 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 gain (loss) from discontinued operations for the years ended December 31,
2004, 2003 and 2002 below include the following components:
2004 2003 2002
------------ ------------ ------------
Net revenues $ 1,507,955 $ 6,717,179 $ 11,911,913
Cost of goods sold and
operating expenses 4,955,098 10,097,292 13,317,071
------------ ------------ ------------
Loss from operations (3,447,143) (3,380,113) (1,405,158)
Gain on sale of assets 11,220,469 0 0
------------ ------------ ------------
Gain (loss) from
discontinued operations $ 7,773,326 $ (3,380,113) $ (1,405,158)
============ ============ ============
35
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
Effective October 2, 2000, the Company formed a wholly owned subsidiary, D2D,
LLC. The consolidated financial statements include the accounts of ParkerVision,
Inc. and D2D, LLC, after elimination of all significant inter-company
transactions and accounts.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. The more significant estimates made by management include
the allowance for doubtful accounts receivable, reserves for sales returns,
inventory reserves for potential excess or obsolete inventory, the impairment of
assets and amortization period for intangible and long-lived assets, and
warranty reserves. Actual results could differ from the estimates made.
Management periodically evaluates estimates used in the preparation of the
consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based upon
such periodic evaluation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include cash on hand, interest-bearing deposits, overnight
repurchase agreements and investments with original maturities of three months
or less when purchased.
INVESTMENTS
Investments consist of funds invested in U.S. Treasury notes, U.S. Treasury
bills and mortgage-backed securities guaranteed by the U.S. government. The
Company accounts for investment securities under Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." These investments are classified as available for
sale and are intended to be held for indefinite periods of time and are not
intended to be held to maturity. Securities available for sale are recorded at
fair value. Net unrealized holding gains and losses on securities available for
sale, net of deferred income taxes, are included as a separate component of
shareholders' equity in the consolidated balance sheet until these gains or
losses are realized. If a security has a decline in fair value that is other
than temporary, then the security will be written down to its fair value by
recording a loss in the consolidated statement of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
allowance is based on management's assessment of the collectibility of customer
accounts. Management regularly reviews the allowance by considering factors such
as historical experience, age of the account balance and current economic
conditions that may affect a customer's ability to pay. If the creditworthiness
of the Company's customers were to deteriorate, or if actual defaults are higher
than historical experience, additional allowances would be required.
INVENTORIES
Inventories are stated at the lower of cost (as determined under the first-in,
first-out method) or market (net realizable value). Cost includes the
acquisition of purchased materials, labor and overhead. Purchased materials
inventory consists principally of components and subassemblies. The Company's
investment in inventory is maintained to meet anticipated future demand for its
product and the buildup of safety stock on single-source or long lead-time
36
components. The Company has an inventory reserve for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions indicate a further reduction in the
carrying value of inventory, additional write-downs may be required to reduce
inventory to estimated net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the following
estimated useful lives:
Manufacturing and office equipment 5-7 years
Tools and dies 5-7 years
Leasehold improvements 7-10 years
Aircraft 20 years
Furniture and fixtures 7 years
Computer equipment and software 3-5 years
The cost and accumulated depreciation of assets sold or retired are removed from
their respective accounts, and any resulting net gain or loss is recognized in
the accompanying consolidated statements of operations.
The Company accounts for impairment of property and equipment in accordance SFAS
No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." The
carrying value of the asset is reviewed on a regular basis for the existence of
facts, both internally and externally, that may suggest impairment.
Recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of the assets
exceeds its estimated undiscounted future net cash flows, an impairment charge
is recognized in the amount by which the carrying amount of the asset exceeds
the fair value of the assets. The Company did not recognize impairment charges
related to property and equipment in any of the periods presented.
INTANGIBLE ASSETS
Patents, copyrights and other intangible assets are amortized using the
straight-line method over their estimated period of benefit, ranging from three
to twenty years. Management of the Company evaluates the recoverability of
intangible assets periodically and takes into account events or circumstances
that warrant revised estimates of useful lives or that indicate impairment
exists. No impairments of intangible assets have been identified during any of
the periods presented.
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 December 31, 2004 and 2003, the Company had deferred
revenue from product sales in the distribution channel of $407,403 and $0,
37
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. Revenues for the period ended December 31, 2004, 2003
and 2002 are net of allowances for sales returns of $97,958, $74,097, and $0,
respectively.
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 under Emerging Issues Task Force, (EITF) Issue 01-19, to
derive net revenue. For the years ended December 31, 2004 and 2003, net revenue
was reduced for cooperative marketing costs in the amount of $233,201 and $0,
respectively.
SHIPPING AND HANDLING FEES AND COSTS
The Company includes shipping and handling fees billed to customers in net
revenue in accordance with EITF Issue 00-10, "Accounting for Shipping and
Handling Fees and Costs". Shipping and handling costs associated with outbound
freight are included in sales and marketing expenses and totaled $29,234, $2,123
and $0 for the years ended December 31, 2004, 2003 and 2002, respectively.
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 3). For
the years ended December 31, 2004, 2003 and 2002, warranty expenses from
continuing operations were $4,853, $0 and $0, respectively. Warranty expenses
from discontinued operations were $10,587, $55,729 and $106,974 for the years
ended December 31, 2004, 2003 and 2002, respectively.
A reconciliation of the changes in the aggregate product warranty liability for
the years ended December 31, 2004 and 2003 is as follows:
Warranty Reserve
Debit(Credit)
----------------------
2004 2003
--------- ---------
Balance at the beginning of the year $(199,084) $(248,230)
Accruals for warranties issued during the year (15,441) (55,729)
Accruals related to pre-existing warranties (including changes
in estimates) 0 0
Settlements made (in cash or in kind) during the year 6,761 104,875
Reduction as a result of discontinued operations 202,911 0
--------- ---------
Balance at the end of the year $ (4,853) $(199,084)
========= =========
The Company offered extended service and support contacts related to its
discontinued operations. A reconciliation of the changes in the aggregate
deferred revenue from extended service contracts for the years ended December
31, 2004 and 2003 is as follows:
Deferred Revenue from
Extended Service
Contracts
Debit(Credit)
----------------------
2004 2003
--------- ---------
Balance at the beginning of the year $(561,584) $(383,704)
Accruals for contracts issued during the year (129,875) (737,617)
Revenue recognized during the year 236,428 559,737
Reduction as a result of discontinued operations 455,031 0
--------- ---------
Balance at the end of the year $ 0 $(561,584)
========= =========
38
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. The Company incurred
advertising costs related to continuing operations of $215,747, $64,917, and $0
for the years ended December 31, 2004, 2003 and 2002, respectively.
LOSS PER COMMON SHARE
Basic loss per common share is determined based on the weighted-average number
of common shares outstanding during each year. Diluted loss per common share is
the same as basic loss per common share as all common share equivalents are
excluded from the calculation, as their effect is anti-dilutive. The
weighted-average number of common shares outstanding for the years ended
December 31, 2004, 2003, and 2002, was 17,989,135, 15,446,857, and 13,941,068,
respectively. The total number of options and warrants to purchase 6,620,603,
7,007,767, and 6,518,250, shares of common stock that were outstanding at
December 31, 2004, 2003, and 2002, respectively, were excluded from the
computation of diluted earnings per share as the effect of these options and
warrants would have been anti-dilutive.
IMPAIRMENT OF ASSETS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," as modified by SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" requires that long-lived
assets, including property and equipment and intangibles other than goodwill of
an entity, be tested for recoverability whenever events or circumstances suggest
that their values may be impaired. In performing the review for recoverability,
the Company estimates the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of the expected
future undiscounted cash flows were less than the carrying amount of the asset,
an impairment write-down to fair value (representing the carrying amount that
exceeds the discounted expected future cash flows) would be recorded as a period
expense.
SFAS No. 142, "Goodwill and Other Intangible Assets", requires that goodwill
and intangible assets with indefinite lives be reviewed at least annually for
impairment. As of December 31, 2004, the Company has no goodwill or intangible
assets with indefinite lives.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components. The Company's
other comprehensive income (loss) is comprised of net unrealized gains (losses)
on investments available-for-sale which are included, net of tax, in accumulated
other comprehensive income in the consolidated statements of shareholders'
equity.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company paid no interest or taxes during 2004, 2003 or 2002.
On May 14, 2004 the Company issued 46,820 shares of 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 (see Note 3). Warrants previously issued by the Company
in conjunction with a private placement in the amount of $2,233,800 expired in
2004 and were reclassified to additional paid in capital.
39
During 2003, the Company issued restricted common stock as compensation to
employees with an aggregate fair value of approximately $130,000. On April 28,
2003, the Company issued restricted common stock, valued at approximately
$2,400,000, under the terms of the 2000 Performance Equity Plan as consideration
for professional services (see Note 17). On September 19, 2003 the Company
issued restricted common stock, valued at approximately $950,000, as
consideration for a license agreement (see Note 17).
During 2002, the Company issued restricted common stock as compensation to
employees with an aggregate fair value of approximately $111,000.
INCOME TAX POLICY
The provision for income taxes is based on income before taxes as reported in
the accompanying consolidated statements of operations. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns, in
accordance with SFAS No. 109. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established to reduce deferred tax assets when, based
on available objective evidence it is more likely than not that the benefit of
such assets will not be realized.
ACCOUNTING FOR STOCK BASED COMPENSATION
At December 31, 2004, the Company has two stock-based employee compensation
plans, which are described more fully in Note 16. 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.
2004 2003 2002
---------------- ---------------- ----------------
Net loss, as reported $ (14,814,543) $ (22,014,798) $ (17,271,822)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (12,213,448) (14,867,054) (20,060,070)
---------------- ---------------- ----------------
Pro forma net loss $ (27,027,991) $ (36,881,852) $ (37,331,892)
================ ================ ================
Basic net loss per common
share: As reported $ (0.82) $ (1.43) $ (1.24)
================ ================ ================
Pro forma $ (1.50) $ (2.39) $ (2.68)
================ ================ ================
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
40
granted, modified, or settled at the beginning of the interim or annual
reporting period that starts after June 15, 2005. The Company will adopt FAS
123(R) effective July 1, 2005 on a modified prospective basis without
restatement of prior interim periods. 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 2003 and 2002 consolidated
financial statements in order to conform to the 2004 presentation.
5. INVESTMENTS
At December 31, 2004 and 2003, short-term investments included investments
classified as available-for-sale reported at their fair value based on quoted
market prices of $1,363,571 and $3,008,427, respectively. For the years ended
December 31, 2004, 2003, and 2002, the Company realized gains on the sale of
investments of $0, $228,960 and $158,482, respectively. For the years ended
December 31, 2004, 2003, and 2002, unrealized (losses) gains of $(32,173),
$(279,123), and $159,510, respectively, were recognized in other comprehensive
income.
6. INVENTORIES
Inventories consisted of the following at December 31, 2004 and 2003:
2004 2003
----------- -----------
Purchased materials $ 1,837,364 $ 1,869,542
Work in process 165,709 185,041
Finished goods 831,435 404,765
Spare parts and demonstration inventory 0 1,207,097
----------- -----------
2,834,508 3,666,445
Less allowance for inventory obsolescence (208,745) (1,189,460)
----------- -----------
$ 2,625,763 $ 2,476,985
=========== ===========
In the fourth quarter of 2004, the Company reduced the carrying value of its
inventories by $2,768,854 with the majority of the write-down relating to the
reduction of work in process and finished goods inventories to net realizable
value. The Company lowered the selling price on its current product line in
November 2004. This price adjustment, along with the high carrying costs of
initial production inventory, resulted in the carrying value of inventory
exceeding the net realizable value of the inventory after deduction of direct
selling expenses. This charge is included as a separate component of cost of
goods sold.
7. INTEREST AND OTHER RECEIVABLES
Interest and other receivables consisted of the following at December 31, 2004
and 2003:
41
2004 2003
---------- ----------
Purchase price hold back receivable due
from sale of video division assets $1,250,000 $ 0
Interest receivable 15,497 34,359
Other receivables 12,000 20,048
---------- ----------
$1,277,497 $ 54,407
========== ==========
8. PREPAID EXPENSES
Prepaid expenses and other consisted of the following at December 31, 2004 and
2003:
2004 2003
---------- ----------
Prepaid insurance $ 627,307 $ 942,999
Prepaid services 800,000 800,000
Other prepaid expenses 354,288 569,386
---------- ----------
$1,781,595 $2,312,385
========== ==========
Prepaid services represent the current portion of consulting services prepaid
with shares of the Company's common stock in April 2003 as discussed in Note 17.
9. PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of the following at December 31, 2004
and 2003:
2004 2003
------------ ------------
Manufacturing and office equipment $ 10,378,483 $ 12,727,865
Tools and dies 234,140 850,842
Leasehold improvements 735,932 748,976
Aircraft 340,000 340,000
Furniture and fixtures 592,237 592,237
------------ ------------
12,280,792 15,259,920
Less accumulated depreciation (8,907,898) (10,399,659)
------------ ------------
$ 3,372,894 $ 4,860,261
============ ============
Depreciation expense related to property and equipment was $1,814,892,
$1,974,126, and $1,999,111 in 2004, 2003, and 2002, respectively. Depreciation
related to discontinued operations of $159,467, $426,782 and $494,229 in 2004,
2003 and 2002, respectively, is included in gain (loss) from discontinued
operations.
10. OTHER ASSETS
Other assets consisted of the following at December 31, 2004 and 2003:
42
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
============ ============ ============
2003
----------------------------------------------
Gross Carrying Accumulated
Amount Amortization Net Value
------------ ------------ ------------
Patents and copyrights $ 10,787,826 $ (2,638,862) $ 8,148,964
Prepaid licensing fees 2,030,000 (415,333) 1,614,667
Other intangible assets 364,830 (364,830) 0
Prepaid services, non current portion 1,000,000 0 1,000,000
Deposits and other 549,990 0 549,990
------------ ------------ ------------
$ 14,732,646 $ (3,419,025) $ 11,313,621
============ ============ ============
The Company has pursued an aggressive schedule for filing and acquiring patents
related to its wireless technologies. Patent costs represent legal and filing
costs incurred to obtain patents and trademarks for product concepts and
methodologies developed by the Company. Capitalized patent costs are being
amortized over the estimated lives of the related patents, ranging from fifteen
to twenty years.
Prepaid services represent the long-term portion of consulting services paid
with shares of the Company's common stock in April 2003 as discussed in Note 17.
The current portion of prepaid services is included in prepaid expenses and
other (Note 8). Prepaid licensing fees represent costs incurred to obtain
licenses for use of certain technologies in future products. These fees include
fees of $950,000 paid with shares of the Company's common stock in September
2003 as discussed in Note 17. Prepaid license fees are being amortized over
their estimated economic lives, generally three to five years. Other intangible
assets represent intellectual property acquired from others which are amortized
over their estimated economic lives, generally three years.
Amortization expense for the years ended December 31, 2004, 2003 and 2002 is as
follows:
43
Amortization Expense
------------------------------------
Weighted
average
estimated life
(in years) 2004 2003 2002
--------- ---------- ---------- ----------
Patents and copyrights 17 555,504 $ 657,842 $ 678,723
Prepaid licensing fees 4 613,917 295,166 120,167
Prepaid compensation 3 0 0 243,488
Non-compete 2 0 0 31,250
Other intangibles 3 116,825 25,341 121,608
---------- ---------- ----------
Total amortization 11 $1,286,246 $ 978,349 $1,195,236
========== ========== ==========
Amortization of prepaid compensation in 2002 represents compensation under
employment agreements in connection with the acquisition of assets from Signal
Technologies Inc. ("STI") in 2000. This prepaid compensation was amortized to
expense over the term of the related employment agreements, or approximately
three years. Amortization of non-compete assets in 2002 is also related to
assets acquired from STI.
Amortization related to discontinued operations of $65,637, $182,883 and
$139,032 for 2004, 2003 and 2002, respectively is included in gain (loss) from
discontinued operations.
Future estimated amortization expense for other assets that have remaining
unamortized amounts as of December 31, 2004 were as follows:
2005 $1,471,773
2006 1,392,461
2007 820,836
2008 533,532
2009 533,532
11. PURCHASE OF ASSETS
On July 9, 2004, the Company entered into an asset purchase agreement with
Consumerware Incorporated for the purchase of all the assets relating to the
Aero 2000 cordless telephone. The purchase was concluded on July 15, 2004. The
purchase price was approximately $1,050,000. A portion of the purchase price,
equal to $100,000 was held in escrow as security for the indemnification
obligations of Consumerware until November 2004, at which time it was paid in
full. ParkerVision acquired all the intellectual property including designs,
schematics and software related to the cordless phone valued at approximately
$841,000 as well as high volume production tooling valued at approximately
$159,000 and certain component inventory valued at approximately $50,000. The
intellectual property is being amortized over a three-year period and is charged
to expense in the statement of operations. The tooling purchased is being
depreciated over a three-year period and is charged to expense in the statement
of operations.
12. INCOME TAXES AND TAX STATUS
The Company accounts for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes." As a result of current losses and full deferred
44
tax valuation allowances for all periods, no current or deferred tax provision
(benefit) was recorded for 2004, 2003, and 2002. A reconciliation between the
provision for income taxes and the expected tax benefit using the federal
statutory rate of 34% for the years ended December 31, 2004, 2003 and 2002 is as
follows:
2004 2003 2002
----------- ----------- -----------
Tax benefit at statutory rate $(5,036,945) $(7,382,964) $(5,872,419)
State tax benefit (518,509) (760,011) (604,514)
Increase in valuation allowance 6,382,942 8,330,346 7,062,479
Research and development credit (733,481) (319,560) (671,999)
Other (94,007) 132,189 86,453
----------- ----------- -----------
$ 0 $ 0 $ 0
=========== =========== ===========
The Company's deferred tax assets and liabilities relate to the following
sources and differences between financial accounting and the tax bases of the
Company's assets and liabilities at December 31, 2004 and 2003:
2004 2003
------------ ------------
Gross deferred tax assets:
Net operating loss carryforward $ 40,904,485 $ 37,220,093
Research and development credit 8,092,946 6,919,376
Inventories 1,355,883 609,572
Accrued liabilities 180,733 159,229
Patents and other 1,502,009 1,445,598
------------ ------------
52,036,056 46,353,868
Less valuation allowance (51,246,748) (44,863,806)
------------ ------------
789,308 1,490,062
------------ ------------
Gross deferred tax liabilities:
Depreciation 261,532 425,405
Deferred revenue 152,776 389,657
Restricted stock issuance 375,000 675,000
------------ ------------
789,308 1,490,062
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
The Company has recorded a valuation allowance to state its deferred tax assets
at estimated net realizable value due to the uncertainty related to realization
of these assets through future taxable income. The valuation allowance for
deferred tax assets as of December 31, 2004 and 2003 was $51,246,748 and
$44,863,806, respectively.
At December 31, 2004, the Company had net operating loss and research and
development tax credit carryforwards for income tax purposes of approximately
$109,078,626 and $8,092,946, respectively, which expire in varying amounts from
2008 through 2024. The Company's ability to benefit from the net operating loss
and research and development tax credit carryforwards could be limited under
certain provisions of the Internal Revenue Code if ownership of the Company
changes by more than 50%, as defined.
To the extent that net operating loss carryforwards, if realized, relate to the
portion associated with stock-based compensation, the resulting benefit will be
credited to shareholders' equity, rather than results of operations.
45
13. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company's headquarters and manufacturing operations are located in
Jacksonville, Florida, pursuant to a non-cancelable lease agreement with related
parties (see Note 14). The lease is on a triple net basis and currently provides
for a monthly base rental payment of $23,276 through February 2007, with an
option for renewal.
The Company leases office space in Lake Mary, Florida for a wireless design
center. The lease term, as amended, commenced in September 2000 and provides for
a monthly rental payment of approximately $32,100 through September 2005 and
$9,140 from October 2005 through December 2005.
The Company leases office space in Pleasanton, California under a non-cancelable
lease agreement which commenced in March 2000 and provides for a monthly rental
payment of approximately $13,700 through March 2005. The Company ceased its
operations in Pleasanton at the end of 2001. Although the operations at this
facility ceased in 2001, the Company has a remaining lease obligation through
March 2005. For the year ended December 31, 2002, the remaining estimated future
lease obligation for this facility in the amount of approximately $357,000 was
charged to general and administrative expense in the 2002 Consolidated Statement
of Operations. In January 2004, the Company entered into a sublease agreement
for this facility that partially offset its remaining lease obligation.
The Company leases a facility in Los Angeles, California that was previously
utilized for video division training and sales demonstrations that has a lease
term through May of 2005. Due to the sale of the video division, the remaining
estimated future lease obligation for this facility of approximately $29,000 was
charged to general and administrative expense in the 2004 Consolidated Statement
of Operations in 2004.
The Company leases approximately 800 square feet in Melbourne, Florida for a
wireless design center. The lease term commenced in November 2003 and provides
for a monthly base rental payment of approximately $1,200 through November 2005.
In addition to sales tax payable on base rental amounts, certain leases obligate
the Company to pay property taxes, maintenance and repair costs. Rent expense,
net of sublease income, for the years ended December 31, 2004, 2003 and 2002 was
$758,718, $882,454, and $1,403,075, respectively. Future minimum lease payments
under all non-cancelable operating leases that have initial or remaining terms
in excess of one year as of December 31, 2004 were as follows:
2005 $634,000
2006 279,000
2007 47,000
---------
$960,000
=========
PURCHASE COMMITMENTS
At December 31, 2004 the Company had recorded an accrual for a purchase
commitment of $194,000 related to its net realizable value write down of
inventory (Note 6). The Company has additional purchase commitments with four
suppliers totaling approximately $302,000 for the purchase of materials through
December 2005. These commitments represent non-cancelable blanket purchase
orders for long lead time or single source components. The Company had no
outstanding purchase commitments at December 31, 2003.
46
For the year ended December 31, 2004, three suppliers of significant components,
Zyxel Communications, Texas Instruments and Arrow Electronics, accounted for
approximately 13%, 11% and 10% of the Company's total component purchases,
respectively. Prior to 2004, the Company's significant suppliers were suppliers
of components related to its discontinued operations. For the year ended
December 31, 2003, three suppliers of significant components, Panasonic, Canon
USA, Inc. and Snell and Wilcox accounted for approximately 15%, 14% and 12% of
the Company's total component purchases, respectively. For the year ended
December 31, 2002, four suppliers of significant components of the Company's
PVTV system, Leitch Incorporated, Panasonic, Snell and Wilcox, and Television
Equipment Association accounted for approximately 12%, 12%, 14% and 12% of the
Company's total component purchases, respectively. No other supplier accounted
for more than 10% of the Company's component purchases in 2004, 2003 or 2002.
LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. The Company believes, based upon advice from
outside legal counsel, that the final disposition of such matters will not have
a material adverse effect on its financial position, results of operations or
liquidity.
14. RELATED-PARTY TRANSACTIONS
The Company leases its manufacturing and headquarters office facilities from the
Chairman and Chief Executive Officer of the Company and Barbara Parker, a
related party. The lease's current terms obligate the Company through February
28, 2007 at a monthly base rental payment of $23,276, with an option for
renewal.
The Company paid approximately $1,801,000 in 2002 for patent-related legal
services to a law firm, of which Robert Sterne, a Company director during 2002,
is a partner.
The Company paid Todd Parker, a director and related party, approximately
$75,000 for consulting services in 2002.
In March 2003, the Company sold 495,050 shares of its common stock in a private
placement transaction to members of the Parker family, including CEO Jeffrey
Parker, at a market price of $5.05 per share.
15. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk principally consist of cash, cash equivalents and accounts
receivable. At December 31, 2004, the Company had cash balances on deposit with
banks that exceeded the balance insured by the F.D.I.C. The Company maintains
its cash investments with what management believes to be quality financial
institutions and limits the amount of credit exposure to any one institution.
For the year ended December 31, 2004, one credit customer, TigerDirect.com
accounted for approximately 18% of the Company's total net revenues. Thomson
accounted for 77% of accounts receivable at December 31, 2004. The Company
closely monitors extensions of credit and has never experienced significant
credit losses.
47
16. STOCK OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION PLANS:
1993 STOCK PLAN
The Company adopted a stock plan in September 1993 (the "1993 Plan"). The 1993
Plan, as amended, provided for the grant of options and other Company stock
awards to employees, directors and consultants, not to exceed 3,500,000 shares
of common stock. The plan provided for benefits in the form of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted share
awards, bargain purchases of common stock, bonuses of common stock and various
stock benefits or cash. Options granted to employees and consultants under the
1993 Plan vest for periods up to ten years and are exercisable for a period of
five years from the date the options vest. Options granted to directors under
the 1993 Plan are exercisable immediately and expire ten years from the date of
grant. As of September 10, 2003, the Company was no longer able to issue grants
under the 1993 Plan.
2000 PERFORMANCE EQUITY PLAN
The Company adopted a performance equity plan in July 2000 (the "2000 Plan").
The 2000 Plan provides for the grant of options and other Company stock awards
to employees, directors and consultants, not to exceed 5,000,000 shares of
common stock. The plan provides for benefits in the form of incentive stock
options, nonqualified stock options, and stock appreciation rights, restricted
share awards, stock bonuses and various stock benefits or cash. Options granted
to employees and consultants under the 2000 Plan generally vest for periods up
to five years and are exercisable for a period of five years from the date the
options become vested. Options granted to directors under the 2000 Plan are
generally exercisable immediately and expire ten years from the date of grant.
Options to purchase 1,420,370 shares of common stock were available for future
grants under the 2000 Plan at December 31, 2004.
The following table summarizes option activity in aggregate under the 1993 and
2000 Plans for each of the years ended December 31:
2004 2003 2002
------------------------ ------------------------ ------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at
beginning of year 5,545,366 $ 22.13 4,534,224 $ 25.98 3,761,573 $ 27.90
Granted 685,750 5.36 1,243,800 8.05 846,701 17.00
Exercised 0 (16,100) 6.21 (32,600) 12.29
Forfeited (752,560) 13.28 (203,598) 23.39 (41,450) 28.96
Expired (115,354) 20.73 (12,960) 18.62 0 0.00
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at
end of year 5,363,202 $ 21.24 5,545,366 $ 22.13 4,534,224 $ 25.98
========== ========== ========== ========== ========== ==========
Exercisable at
end of year 4,132,817 $ 23.40 3,623,958 $ 23.83 2,709,330 $ 24.68
========== ========== ========== ========== ========== ==========
Weighted average
fair value of
options granted $ 3.87 $ 3.97 $ 10.05
========== ========== ==========
48
NON-PLAN OPTIONS/WARRANTS
The Company has granted options and warrants outside the 1993 and 2000 Plans for
employment inducements, non-employee consulting services, and for underwriting
and other services in connection with securities offerings. Non-plan options and
warrants are generally granted with exercise prices equal to fair market value
at the date of grant. The following table summarizes activity related to
non-plan options and warrants for each of the years ended December 31:
2004 2003 2002
---------------------------- ---------------------------- ----------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------------ ------------ ------------ ------------ ------------ ------------
Outstanding at
beginning of year 1,462,401 $ 39.62 1,984,026 $ 34.56 2,004,026 $ 34.26
Granted 0 0 0
Exercised 0 0 (20,000) 5.00
Forfeited 0 (476,625) 21.38 0
Expired (205,000) $ 22.04 (45,000) 9.58 0
------------ ------------ ------------ ------------ ------------ ------------
Outstanding end of
Year 1,257,401 $ 42.49 1,462,401 $ 39.62 1,984,026 $ 34.56
============ ============ ============ ============ ============ ============
Exercisable at
end of year 1,257,401 $ 42.49 1,439,901 $ 39.88 1,749,098 $ 36.28
============ ============ ============ ============ ============ ============
Weighted average
fair value of
options granted N/A N/A N/A
============ ============ ============
The options outstanding at December 31, 2004 under all plans, including the
non-plan options and warrants, have exercise price ranges and weighted average
contractual lives as follows:
Options Outstanding Options Exercisable
------------------------------------------------------ ----------------------------------
Number Wtd. Avg. Number
Range of Exercise Outstanding at Remaining Wtd. Avg. Exercisable at Wtd. Avg.
Prices December Contractual Exercise December 31, Exercise
31, 2004 Life Price 2004 Price
- ----------------------- ----------------- -------------- -------------- ---------------- -------------
$3.99-$5.82 568,650 10 years $4.94 6,650 $5.09
$6.00-$9.00 976,650 7 years $7.91 693,500 $7.84
$9.06-$13.05 297,750 3 years $11.53 282,500 $11.58
$13.64-$20.39 1,148,601 4 years $16.92 1,082,201 $16.92
$20.47-$29.96 1,441,218 5 years $24.76 1,296,216 $25.09
$31.00-$44.75 1,308,259 6 years $37.85 1,281,759 $37.82
$48.00-$61.50 879,475 7 years $55.52 747,392 $56.30
----------------- ----------------
6,620,603 5,390,218
================= ================
The fair value of each employee option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003, 2002 and 2001:
49
2004 2003 2002
------------------- --------------------- ---------------------
Expected volatility 77%-79% 74%-78% 48%-71%
Risk free interest rate 2.99%-4.80% 1.30%-3.25% 2.74%-5.29%
Expected life 5-10 years 5-10 years 5-11 years
Dividend yield -- -- --
17. STOCK AUTHORIZATION AND ISSUANCE
PREFERRED STOCK
In March 2000, the Company issued 79,868 shares of Series D Preferred Stock, $1
par value, $25 stated value, for the acquisition of substantially all of the
assets of STI. The Company also issued an aggregate of 34,151 shares of Series
A, B, and C Preferred Stock, $1 par value, $25 stated value as signing bonuses
and compensation under employment contracts for certain employees of STI.
The preferred stock was converted into approximately 73,000, 16,600 and 86,000
shares of common stock in March 2003, 2002 and 2001, respectively. As of
December 31, 2004 the Company has no outstanding preferred stock.
COMMON STOCK
On May 14, 2004 the Company issued 46,820 shares of 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 (Note 3).
On November 14, 2003, ParkerVision consummated the sale of an aggregate of
2,310,714 shares of common stock in a private placement to a limited number of
institutional and other investors in a private placement pursuant to offering
exemptions under the Securities Act of 1933. These shares were subsequently
registered for resale under an S-3 registration statement. These shares were
sold at a price of $8.75 per share for gross proceeds of $20,218,747.
ParkerVision engaged Wells Fargo Securities LLC as placement agent pursuant to
an agreement dated October 23, 2003, under which it paid an aggregate of
$1,243,124 in fees and expenses in connection with the offering.
On September 3, 2003, the Company entered into a license agreement with
SkyCross, Inc. ("SkyCross") for certain antenna technology to be utilized in
current and future products for the Company's wireless division. In
consideration for the license, the Company issued 138,158 shares of restricted
common stock with an aggregate value of $950,000 or $6.88 per share. These
shares were subsequently registered for resale by SkyCross under an S-3
registration statement.
On April 28, 2003, the Company entered into a written agreement with a corporate
third party to conceive and develop new business opportunities for the Company.
In consideration of the services to be rendered over a three-year term, the
Company issued 250,000 shares of restricted common stock, under the terms of the
2000 Performance Equity Plan with an aggregate value of approximately
$2,400,000, or $9.60 per share. These shares were subsequently registered for
resale under an S-3 registration statement. The shares are fully vested and
non-forfeitable, and they are subject to a sales limitation of a maximum of
83,334 shares per year. The $2,400,000 was capitalized as prepaid services and
is being amortized to expense over the three-year term of the related agreement
(Notes 8 and 10).
On March 26, 2003, the Company received $5,078,200 from the sale of an aggregate
of 1,154,437 shares of its common stock in private placement transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended. These shares
50
were subsequently registered for resale under an S-3 registration statement.
Leucadia National Corporation and another third party purchased 659,387 shares
of common stock at a price of $3.91 per share. The Parker family, including CEO
Jeffrey Parker, purchased 495,050 shares of common stock at the market price of
$5.05 per share.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial data presented below has been reclassified to reflect
discontinued operations.
(in thousands except for per share data)
For the year
For the three months ended ended
------------------------------------------------------------
March 31, June 30, September 30, December 31, December 31,
2004 2004 2004 2004 2004
------------ ------------ ------------ ------------ ------------
Revenues $ 296 $ 64 $ 62 $ 19 $ 441
Gross margin 248 (17) (21) (3064) (2854)
Net loss from continuing
operations (3,973) (3,921) (5,007) (9,687) (22,588)
Gain (loss) from
discontinued operations (1,390) 9,179 (81) 65 7,773
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (5,363) $ 5,258 $ (5,088) $ (9,622) $ (14,815)
============ ============ ============ ============ ============
Basic and diluted net loss per common share:
Continuing operations $ (0.22) $ (0.22) $ (0.28) $ (0.53) $ (1.25)
Discontinued operations (0.08) 0.51 0.00 0.00 0.43
------------ ------------ ------------ ------------ ------------
Total $ (0.30) $ 0.29 $ (0.28) $ (0.53) $ (0.82)
============ ============ ============ ============ ============
For the year
For the three months ended ended
------------------------------------------------------------
March 31, June 30, September 30, December 31, December 31,
2003 2003 2003 2003 2003
------------ ------------ ------------ ------------ ------------
Revenues $ 0 $ 0 $ 0 $ 23 $ 23
Gross margin 0 0 0 (7) (7)
Net loss from continuing
operations (4,733) (4,255) (4,792) (4,855) (18,635)
Loss from discontinued operations
(825) (794) (835) (926) (3,380)
------------ ------------ ------------ ------------ ------------
Net loss $ (5,558) $ (5,049) $ (5,627) $ (5,781) $ (22,015)
============ ============ ============ ============ ============
Basic and diluted net loss per common share:
Continuing operations $ (0.33) $ (0.28) $ (0.31) $ (0.29) $ (1.21)
Discontinued operations (0.06) (0.05) (0.05) (0.06) (0.22)
------------ ------------ ------------ ------------ ------------
Total $ (0.39) $ (0.33) $ (0.36) $ (0.35) $ (1.43)
============ ============ ============ ============ ============
Gross margin for the fourth quarter of 2004 reflects a $2.8 million write down
of inventory to net realizable value as further discussed in Note 6.
51
19. SUBSEQUENT EVENT
On March 14, 2005, ParkerVision consummated the sale of an aggregate of
2,880,000 shares of common stock to a limited number of institutional and other
investors in a private placement transaction pursuant to offering exemptions
under the Securities Act of 1933. The shares, which represent 14% of the
Company's outstanding common stock on an after-issued basis, were sold at a
price of $7.50 per share, for net proceeds of approximately $20.3 million.
Warrants to purchase an additional 720,000 shares of common stock were issued in
connection with the transaction for no additional consideration. The warrants
are immediately exercisable at an exercise price of $9.00 per share and expire
on March 10, 2010.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiary is
made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.
Based on their evaluation as of December 31, 2004, the chief executive officer
and chief financial officer of the Company have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective to ensure that the
information required to be disclosed by the Company in the 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 SEC rules and
forms.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we conducted
an evaluation of the effectiveness of our internal control over financial
reporting based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the criteria established in Internal
Control - Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of December 31, 2004. Our
management's assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Election of Directors" in the
Company's definitive Proxy Statement for its 2005 Annual Meeting of
Stockholders, which will be filed with the Commission pursuant to Regulation 14A
under the Securities and Exchange Act of 1934, as amended, (the "2005 Proxy
Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Election of Directors - Executive
Compensation" in the 2005 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table gives the information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2004, including the 1993
Stock Plan, the 2000 Performance Equity Plan and other miscellaneous plans.
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
------------- ------------------- -------------------- --------------------------
( a ) ( b ) ( c )
Equity compensation plans
approved by security holders 5,363,202 $22.13 1,420,370
Equity compensation plans not
approved by security holders 115,000 $23.25 None
----------------------- --------------------------
Total 5,478,202 1,420,370
======================= ==========================
The equity compensation plans reported upon in the above table not approved by
security holders include:
i) Options to purchase an aggregate of 25,000 shares granted to two
directors in March 1999 at exercise prices of $23.25 per share.
These options were immediately vested and expire in March 2009.
ii) Options to purchase 100,000 shares granted to an employee in March
1999 at an exercise price of $23.25. These options vest ratably over
five years and expire in May 2009. As of December 31, 2004, options
to purchase 90,000 shares were outstanding.
53
The information contained under the caption "Security Ownership of Certain
Beneficial Owners" in the 2005 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Election of Directors - Certain
Relationships and Related Transactions" in the 2005 Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained under the caption "Election of Directors - Audit
Committee Information and Report" in the 2005 Proxy Statement is incorporated
herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description
------- -------------------------------------------------------------------
3.1 Articles of Incorporation, as amended (incorporated by reference
from Exhibit 3.1 of Registration Statement No. 33-70588-A)
3.2 Amendment to Amended Articles of Incorporation dated March 6, 2000
(incorporated by reference from Exhibit 3.2 of Annual Report on Form
10-K for the year ended December 31, 1999)
3.3 Bylaws, as amended (incorporated by reference from Exhibit 3.2 of
Annual Report on Form 10-K for the year ended December 31, 1998)
3.4 Amendment to Certificate of Incorporation dated July 17, 2000
(incorporated by reference from Exhibit 3.1 of Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000)
4.1 Form of common stock certificate (incorporated by reference from
Exhibit 4.1 of Registration Statement No. 33-70588-A)
4.2 Purchase Option between the Registrant and Tyco Sigma Ltd. dated May
22, 2000 (incorporated by reference from Exhibit 4.1 of Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000)
4.3 Purchase Option between the Registrant and Leucadia National
Corporation dated May 22, 2000 (incorporated by reference from
Exhibit 4.2 of Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000)
4.4 Purchase Option between the Registrant and David M. Cumming dated
May 22, 2000 (incorporated by reference from Exhibit 4.3 of
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000)
54
4.5 Purchase Option between the Registrant and Peconic Fund Ltd. dated
May 22, 2000 (incorporated by reference from Exhibit 4.4 of
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000)
4.6 Purchase Option between the Registrant and Texas Instruments, Inc.
dated March 8, 2001(incorporated by reference from exhibit 4.7 of
Annual Report on Form 10-K for the year ended December 31, 2000)
4.7 Form of Warrant between the Registrant and each of the investors in
the March 2005 private placement who are the Selling Shareholders *
10.1 Lease dated March 1, 1992 between the Registrant and Jeffrey Parker
and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida
(incorporated by reference from Exhibit 10.1 of Registration
Statement No. 33-70588-A)
10.2 1993 Stock Plan, as amended (incorporated by reference from the
Company's Proxy Statement dated October 1, 1996)
10.3 Stock option agreement dated October 11, 1993 between the Registrant
and Jeffrey Parker (incorporated by reference from Exhibit 10.13 of
Registration Statement No.33-70588-A)
10.4 First amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.21
of Annual Report on Form 10-KSB for the year ended December 31,
1995)
10.5 Second amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.1
of Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 1996)
10.6 Third amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.19
of Annual Report on Form 10-KSB for the period ended December 31,
1996)
10.7 Fourth amendment to lease dated March 1, 1992 between the Registrant
and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way,
Jacksonville, Florida (incorporated by reference from Exhibit 10.8
of the Annual Report on Form 10-K for the period ended December 31,
2001)
10.8 Subscription agreement between the Registrant and Tyco Sigma Ltd
dated May 22, 2000 (incorporated by reference from Exhibit 10.1 of
Quarterly Report on Form 10-Q for the period ended June 30, 2000)
10.10 Subscription agreement between the Registrant and Leucadia National
Corporation dated May 22, 2000 (incorporated by reference from
55
Exhibit 10.2 of Quarterly Report on Form 10-Q for the period ended
June 30, 2000)
10.11 Transfer and registration rights agreement between the Registrant
and Peconic Fund Ltd. dated May 22, 2000 (incorporated by reference
from Exhibit 10.3 of Quarterly Report on Form 10-Q for the period
ended June 30, 2000)
10.12 Subscription agreement between the Registrant and Texas Instruments,
Inc. dated March 8, 2001 (incorporated by reference fro the Exhibit
10.16 of the Annual Report on Form 10-K for the period ended
December 31, 2000)
10.13 Employment agreement dated September 7, 2000 between Jeffrey Parker
and Registrant (incorporated by reference from Exhibit 10.1 of
Quarterly Report on Form 10-Q for the period ended June 30. 2001)
10.14 Stock option agreement dated September 7, 2000 between Jeffrey
Parker and Registrant (incorporated by reference from Exhibit 10.2
of Quarterly Report on Form 10-Q for the period ended June 30. 2001)
10.15 Stock option agreement dated September 7, 2000 between Jeffrey
Parker and Registrant (incorporated by reference from Exhibit 10.3
of Quarterly Report on Form 10-Q for the period ended June 30. 2001)
10.16 Employment agreement dated March 6, 2002 between David Sorrells and
Registrant (incorporated by reference from Exhibit 10.21 of Annual
Report on Form 10-K for the period ended December 31, 2001)
10.17 2000 Performance Equity Plan (incorporated by reference from Exhibit
10.11 of Registration Statement No. 333-43452)
10.18 Development and Foundry Agreement between Registrant and Texas
Instruments dated March 8, 2001 (incorporated by reference from
Exhibit 10.3 of Registration Statement No. 333-110712)
10.19 Form of 2002 Indemnification Agreement for Directors and Officers
(incorporated by reference from Exhibit 10.1 of Quarterly Report on
Form 10-Q for the period ended September 30, 2002)
10.20 Subscription agreement between the Registrant and Leucadia National
Corporation dated March 26, 2003 (incorporated by reference from
Exhibit 10.24 of Annual Report on Form 10-K for the period ended
December 31, 2002)
10.21 Subscription agreement between the Registrant and Jeffrey Parker
dated March 26, 2003 (incorporated by reference from Exhibit 10.25
of Annual Report on Form 10-K for the period ended December 31,
2002)
10.22 Subscription agreement between the Registrant and Barbara Parker
dated March 26, 2003 (incorporated by reference from Exhibit 10.26
of Annual Report on Form 10-K for the period ended December 31,
2002)
56
10.23 Subscription agreement between the Registrant and Todd Parker dated
March 26, 2003 (incorporated by reference from Exhibit 10.27 of
Annual Report on Form 10-K for the period ended December 31, 2002)
10.24 Subscription agreement between the Registrant and Stacie Wilf dated
March 26, 2003 (incorporated by reference from Exhibit 10.28 of
Annual Report on Form 10-K for the period ended December 31, 2002)
10.25 Subscription agreement between the Registrant and David Cumming
dated March 26, 2003 (incorporated by reference from Exhibit 10.29
of Annual Report on Form 10-K for the period ended December 31,
2002)
10.26 Form of SkyCross, Inc. License Agreement dated September 3, 2003
(incorporated by reference from Exhibit 10.1 of Registration
Statement No. 333-108954)
10.27 Form of Stock Purchase Agreement with each of the investors in the
November 2003 private placement who are the Selling Stockholders
(incorporate by reference from Exhibit 10.1 of Registration
Statement No. 333-110712)
10.28 Asset Purchase Agreement and related ancillary agreements, dated as
of February 25, 2004, among the Company, Thomson and Thomson
Licensing (incorporated by reference from Exhibits 2.1, 10.1, 10.2,
10.3, 10.4, 10.4 and 10.6 of Current Report on Form 8-K for the
event date of February 25, 2004)
10.29 Form of Stock Purchase Agreement with each of the investors in the
March 2005 private placement who are the Selling Stockholders *
10.30 List of investors for Subscription Agreement and Warrant dated March
10, 2005*
22.1 Table of Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
31.1 Rule 13a-14 and 15d-14 Certification of Jeffrey Parker*
31.2 Rule 13a-14 and 15d-14 Certification of Cynthia Poehlman*
32.1 Section 1350 Certification of Jeffrey Parker and Cynthia Poehlman*
* Filed herewith
(B) REPORTS ON FORM 8-K.
1. Form 8-K, dated November 19, 2004. Item 5.02 - Departure of
Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers. Report of retirement of William Hightower,
President of ParkerVision, Inc.
57
SIGNATURES
In accordance with Section 13 of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PARKERVISION, INC.
Date: March 15, 2005 By: /s/ Jeffrey L. Parker
---------------------
Jeffrey L. Parker
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ Jeffrey L. Parker Chief Executive Officer and Chairman March 15, 2005
--------------------- of the Board (Principal Executive Officer)
Jeffrey L. Parker
By: /s/ Todd Parker Vice President and Director March 15, 2005
---------------
Todd Parker
By: /s/ Cynthia L. Poehlman Chief Financial Officer (Principal Accounting March 15, 2005
----------------------- Officer)
Cynthia L. Poehlman
By: /s/ David F. Sorrells Chief Technical Officer and Director March 15, 2005
---------------------
David F. Sorrells
By: /s/ Stacie Wilf Secretary and Treasurer March 15, 2005
---------------
Stacie Wilf
By: /s/ William A. Hightower Director March 15, 2005
------------------------
William A. Hightower
By: /s/ Richard A. Kashnow Director March 15, 2005
-----------------------
Richard A. Kashnow
By: /s/ John Metcalf Director March 15, 2005
----------------
John Metcalf
By: /s/ William L. Sammons Director March 15, 2005
----------------------
William L. Sammons
By: Director March 15, 2005
----------------------
Nam P. Suh
By: /s/ Papken der Torossian Director March 15, 2005
-------------------------
Papken der Torossian
58
PARKERVISION, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Valuation
Allowance
for Balance at Provision Balance at
Inventory Beginning Charged to End of
Obsolescence of Period Expense Write-Offs Period
- ---------------------------- ------------- ----------- ------------ -------------
Year ended December 31, 2002 $ 979,570 $ 521,573 $ (668,841) $ 832,302
Year ended December 31, 2003 832,302 401,271 (44,113) 1,189,460
Year ended December 31, 2004 1,189,460 320,533 (1,301,248) 208,745
The inventory provision charged to expense includes charges related to
discontinued operations of $521,573, $401,271 and $100,000 for the years end
December 31, 2002, 2003 and 2004, respectively.
Balance at
Beginning of Balance at End
Valuation Allowance for Income Taxes Period Provision Write-Offs of Period
- --------------------------------------- ----------------- ---------------- ------------ ----------------
Year ended December 31, 2002 $29,470,980 $7,062,479 $0 $36,533,459
Year ended December 31, 2003 36,533,459 8,330,347 0 44,863,806
Year ended December 31, 2004 44,863,806 6,382,942 0 51,246,748
59
Index to Exhibits
4.7 Form of Warrant between the Registrant and each of the investors in
the March 2005 private placement who are the Selling Shareholders
10.29 Form of Stock Purchase Agreement with each of the investors in the
March 2005 private placement who are the Selling Stockholders
10.30 List of investors for Subscription Agreement and Warrant dated March
10, 2005
22.1 Table of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
31.1 Rule 13a-14 and 15d-14 Certification of Jeffrey Parker
31.2 Rule 13a-14 and 15d-14 Certification of Cynthia Poehlman
32.1 Section 1350 Certification of Jeffrey Parker and Cynthia Poehlman
60