-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O1lKkjy66pc9rRl6RxSLGRx8s5BFgfcPo3F9luzn1At9fk5BQALRxgjcBkRuBwA1 OmDSN7zJfxHXguR6JjByLQ== 0001144204-04-018120.txt : 20041109 0001144204-04-018120.hdr.sgml : 20041109 20041109160102 ACCESSION NUMBER: 0001144204-04-018120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041109 DATE AS OF CHANGE: 20041109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARKERVISION INC CENTRAL INDEX KEY: 0000914139 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 592971472 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22904 FILM NUMBER: 041129635 BUSINESS ADDRESS: STREET 1: 8493 BAYMEADOWS WAY CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9047371367 MAIL ADDRESS: STREET 1: 8493 BAYMEADOWS WAY CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-Q 1 v08278_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________to____________ Commission file number 0-22904 PARKERVISION, INC. (Exact name of registrant as specified in its charter) Florida 59-2971472 (State or other jurisdiction of I.R.S. Employer ID No. incorporation or organization) 8493 Baymeadows Way Jacksonville, Florida 32256 (904) 737-1367 (Address of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. Indicate by check mark whether the registrant is an accelerated filer (as defined by rule 12b-2 of the Exchange Act). Yes X No __. APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___. APPLICABLE ONLY TO CORPORATE ISSUERS As of November 5, 2004, 18,006,324 shares of the Issuer's Common Stock, $.01 par value, were outstanding. PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, 2004 December 31, ASSETS (unaudited) 2003 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $13,443,711 $17,467,875 Short-term investments 1,478,378 3,008,427 Accounts receivable, net of allowance for doubtful accounts of $91,506 at September 30, 2004 and $64,159 at December 31, 2003 920,465 988,849 Interest and other receivables 1,396,236 54,407 Inventories, net 4,250,065 2,476,985 Prepaid expenses and other 1,259,911 2,312,385 ----------- ----------- Total current assets 22,748,766 26,308,928 PROPERTY AND EQUIPMENT, net 3,678,835 4,860,261 INTANGIBLE ASSETS AND OTHER, net 11,063,795 11,313,621 ----------- ----------- Total assets $37,491,396 $42,482,810 =========== ===========
The accompanying notes are an integral part of these financial statements. 2 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, 2004 December 31, LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 2003 ------------- ------------- CURRENT LIABILITIES: Accounts payable $ 1,434,080 $ 693,820 Accrued expenses: Salaries and wages 593,532 592,369 Warranty reserves 2,730 199,084 Professional fees 176,382 143,893 Other accrued expenses 357,292 228,057 Deferred revenue 543,136 1,226,929 ------------- ------------- Total current liabilities 3,107,152 3,084,152 COMMITMENTS AND CONTINGENCIES (Notes 2, 6 and 8) ------------- ------------- Total liabilities 3,107,152 3,084,152 ------------- ------------- SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 100,000,000 shares authorized, 18,006,324 and 17,959,504 shares issued and outstanding at September 30, 2004 and December 31, 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 income 3,719 31,746 Accumulated deficit (100,861,448) (95,669,152) ------------- ------------- Total shareholders' equity 34,384,244 39,398,658 ------------- ------------- Total liabilities and shareholders' equity $ 37,491,396 $ 42,482,810 ============= =============
The accompanying notes are an integral part of these financial statements. 3 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended September 30, Nine months ended September 30, -------------------------------- -------------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Product revenue $ 96,182 $ 0 $ 265,680 $ 0 Royalty revenue 0 0 250,000 0 ------------ ------------ ------------ ------------ Net revenues 96,182 0 515,680 0 Cost of goods sold 83,188 0 212,481 0 ------------ ------------ ------------ ------------ Gross margin 12,994 0 303,199 0 ------------ ------------ ------------ ------------ Research and development expenses 2,784,904 3,411,990 8,160,647 10,305,302 Marketing and selling expenses 622,253 290,793 1,360,520 636,421 General and administrative expenses 1,668,862 1,069,508 3,838,591 3,122,079 Loss on disposal of property and equipment 0 84,007 0 84,007 ------------ ------------ ------------ ------------ Total operating expenses 5,076,019 4,856,298 13,359,758 14,147,809 ------------ ------------ ------------ ------------ Interest and other income 56,013 64,089 155,861 367,037 ------------ ------------ ------------ ------------ Loss from continuing operations (5,007,012) (4,792,209) (12,900,698) (13,780,772) (Loss) gain from discontinued operations (including gain on the disposal of $11,156,177 in 2004) (81,307) (834,949) 7,708,402 (2,453,597) ------------ ------------ ------------ ------------ Net loss (5,088,319) (5,627,158) (5,192,296) (16,234,369) Unrealized loss on securities (1,676) (57,392) (28,027) (220,641) ------------ ------------ ------------ ------------ Comprehensive loss $ (5,089,995) $ (5,684,550) $ (5,220,323) $(16,455,010) ============ ============ ============ ============ Basic and diluted net loss per common share Continuing operations $ (0.28) $ (0.31) $ (0.72) $ (0.92) Discontinued operations 0.00 (0.05) 0.43 (0.16) ------------ ------------ ------------ ------------ Total $ (0.28) $ (0.36) $ (0.29) $ (1.08) ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 4 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,088,319) $ (5,627,158) $ (5,192,296) $(16,234,369) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 766,914 700,074 2,305,160 2,152,012 Amortization of discounts on investments 8,573 39,843 32,022 131,266 Provision for obsolete inventories 45,365 75,000 140,365 225,000 Stock compensation 200,000 200,000 805,909 793,096 Loss (gain) on sale of discontinued operations 53,049 0 (11,156,177) 0 Gain on sale of investments 0 (31,876) 0 (201,482) Loss on disposal of equipment 0 84,007 0 84,007 Changes in operating assets and liabilities, net of the effects of the sale of the video business unit: Accounts receivable, net (125,900) 5,364 68,384 329,855 Inventories (2,092,744) (446,045) (4,233,076) 338,157 Prepaid, interest receivable and other assets 322,133 458,444 (394,581) 965,563 Accounts payable and accrued expenses 630,120 217,425 909,704 (202,266) Deferred revenue 484,985 (8,919) 533,578 32,762 ------------ ------------ ------------ ------------ Total adjustments 292,495 1,293,317 (10,988,712) 4,647,970 ------------ ------------ ------------ ------------ Net cash used in operating activities (4,795,824) (4,333,841) (16,181,008) (11,586,399) ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments available for sale 0 (792,657) 0 (5,603,060) Proceeds from maturity/sale of investments 670,000 3,098,805 1,470,000 12,562,309 Proceeds from sale of video business unit assets and other property and equipment 30,887 437,855 12,184,826 437,855 Collections of purchase price receivable 903,939 0 903,939 0 Purchases of property and equipment (439,283) (411,154) (860,635) (849,570) Payments for patent costs and other intangible assets (1,158,696) (225,459) (1,541,286) (908,011) ------------ ------------ ------------ ------------ Net cash (used in) provided by investing activities 6,847 2,107,390 12,156,844 5,639,523 ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 0 4,870 0 5,083,718 ------------ ------------ ------------ ------------ Net cash provided by financing activities 0 4,870 0 5,083,718 ------------ ------------ ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (4,788,977) (2,221,581) (4,024,164) (863,158) CASH AND CASH EQUIVALENTS, beginning of period 18,232,688 2,445,456 17,467,875 1,087,033 ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 13,443,711 $ 223,875 $ 13,443,711 $ 223,875 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 5 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements of ParkerVision, Inc. and subsidiary (the "Company", or "ParkerVision") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. All normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations have been included. Operating results for the nine-month period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These interim consolidated financial statements should be read in conjunction with the Company's latest Annual Report on Form 10-K for the year ended December 31, 2003. There have been no changes in accounting policies from those stated in the Annual Report on Form 10-K for the year ended December 31, 2003. CONSOLIDATED STATEMENTS OF CASH FLOWS. The Company paid no cash for income taxes or interest for the three or nine-month periods ended September 30, 2004 and 2003. On April 28, 2003 the Company issued 250,000 shares of restricted common stock, valued at approximately $2,400,000, under the terms of the 2000 Performance Equity Plan as consideration for professional services. On May 14, 2004 the Company issued 468 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 of the video business unit (see Note 2). Unrealized losses on investments for the three and nine month periods ended September 30, 2004 were $1,676 and $28,027, respectively. Unrealized loses for the three and nine-month periods ended September 30, 2003 were $57,392 and $220,641, respectively. Warrants previously issued by the Company in conjunction with a private placement in the amount of $2,233,800 expired and were reclassified to additional paid in capital. WARRANTY COSTS For wireless products, the Company warrants 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 the sale of the assets of the video business unit (see Note 2). 6 A reconciliation of the changes in the aggregate product warranty liability for the nine months ended September 30, 2004 and the year ended December 31, 2003 are as follows:
Warranty Reserve Debit (Credit) ------------------------------------- Three months ended Nine months ended September 30, September 30, 2004 2004 --------- --------- Balance at the beginning of the period $ (1,768) $(199,084) Accruals for warranties issued during the period (962) (13,317) Accruals related to pre-existing warranties (including changes in estimates) 0 0 Settlements made (in cash or in kind) during the period 0 6,760 Reduction as a result of discontinued operations 0 202,911 --------- --------- Balance at the end of the period $ (2,730) $ (2,730) ========= =========
The Company offered extended service and support contracts on its PVTV automated production systems. A reconciliation of the changes in the aggregate deferred revenue from extended service contracts for the nine months ended September 30, 2004 and for the year ended December 31, 2003 are as follows:
Deferred Revenue from Extended Service Contracts Debit (Credit) --------------------------------------------- Three months ended Nine months ended September 30, September 30, 2004 2004 --------- --------- Balance at the beginning of the period $ 0 $(561,584) Accruals for contracts issued during the period 0 (129,875) Revenue recognized during the period 0 236,428 Reduction as a result of discontinued operations 0 455,031 --------- --------- Balance at the end of the period $ 0 $ 0 ========= =========
REVENUE RECOGNITION. The Company makes sales direct through its own website or through retail distribution channels. Retail distributors are given business terms that allow for the return of unsold inventory. In addition, the Company currently offers a 30-day money back guarantee on its wireless 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 deferred 100% of wireless product sales within the 30-day guarantee period. ACCOUNTING FOR STOCK-BASED COMPENSATION. At September 30, 2004, the Company has two stock-based employee compensation plans, which are accounted for under the intrinsic value method. For employee stock option grants, no stock-based employee compensation cost is reflected in the Consolidated Statements of Operations, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. Stock-based compensation to non-employees is accounted for under the fair value method. 7 The following table illustrates the effect on the net loss and loss per share if the Company had applied the fair value method, to stock-based employee compensation.
Three months ended Nine months ended ------------------------------- -------------------------------- September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ----------- ------------ ------------ ------------ Net loss, as reported $(5,088,319) $ (5,627,158) $ (5,192,296) $(16,234,369) Deduct: Total stock-based employee compensation expense determined under fair value (2,767,828) (6,849,077) (8,476,259) (10,888,006) method, net of related tax effects ----------- ------------ ------------ ------------ Pro forma net loss (7,856,147) (12,476,235) (13,668,555) $(27,122,375) =========== ============ ============ ============ Basic and diluted net loss per share: As reported $ (.28) $ (.36) $ (.29) $ (1.08) =========== ============ ============ ============ Pro forma $ (.80) $ (.44) $ (.76) $ (1.81) =========== ============ ============ ============
2. DISCONTINUED OPERATIONS On February 25, 2004, ParkerVision, entered into an asset purchase agreement and various ancillary agreements ("Asset Agreement") with Thomson Broadcast & Media Solutions, Inc. ("Thomson") and Thomson Licensing, SA ("Thomson Licensing" and, together with Thomson, the "Purchasers") for the sale of all the assets of the Company's video business unit, with certain limited exceptions. On May 14, 2004, after receipt of shareholder approval of the transaction and satisfaction of the conditions to closing, the Company, Thomson and Thomson Licensing consummated the sale. Under the Asset Agreement, the Company sold the business and related assets of its video division, excluding certain contracts, accounts receivable and other assets. Generally, the assets sold were all those used in connection with and relating to the PVTVand CameraMan products and services, including 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. 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 Purchasers include the following: Patents, net $ 681,444 Inventories, net 1,702,797 Furniture and equipment, net 584,059 Prepaids and other deposits 37,364 Deferred revenue (1,217,371) Warranty reserves (202,911) -------------- $1,585,382 ============== The purchase price for the assets was $12,500,000, subject to adjustment upon verification of the actual carrying value of certain assets transferred, less certain liabilities assumed (the "Purchase Price Adjustment"). A portion of the purchase price equal to $1,250,000 which is included in interest and other receivables on the balance sheet will be held by the Purchasers until May 14, 2005, to indemnify the Purchasers against breaches of the Company's continuing obligations and its representations and warranties under the Asset Agreement. This amount will earn interest until paid. 8 A Purchase Price Adjustment, in the amount of approximately $900,000 was paid by Thomson in July 2004 representing the net book value of assets and liabilities purchased, excluding intangible assets. Additional purchase price adjustments resulting in an additional loss of approximately $53,000 were also recorded during the third quarter of 2004 representing the loss on disposal of the remaining fixed assets related to the video operations that were not purchased by Thomson offset somewhat by a gain related to additional inventory purchased by Thomson. The Company has calculated the tax effect for the discontinued operations. This resulted in an immaterial decrease in deferred tax assets. However, based on management's assessment, the immaterial decrease in deferred tax assets was offset by a corresponding increase in the valuation allowance due to the uncertainty related to realization of these assets through future taxable income. The Company has 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 the Purchasers in respect of its intellectual property that was transferred or should have been transferred if used in connection with the video operations. For a period of up to six months after the closing, the Company is obligated to assist the Purchasers in transitioning the video business into Thomson's operations. This will include providing the Purchasers' employees with office space, training in respect of the business and the products and services, contract manufacturing, and certain general administrative functions. The Company will be reimbursed at cost and at cost-plus depending on the service and the length of time for which the service is provided. The Company entered into a sublease with Thomson for a portion of the office space it currently leases during the second quarter of 2004. This sublease terminated in August of 2004. The Purchasers have been granted a license to use the "ParkerVision" name for a limited time in connection with the transition of the video business to the integrated operations of the Purchasers. The Asset 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 the Purchasers 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 the Purchasers will not be limited as to time or amount. The Purchasers will be permitted to offset their claims against the amount held back on the purchase price and other amounts due the Company through May 14th, 2005 when such retention must be paid to the Company under the terms of the Asset Agreement. 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. 9 Discontinued operations for the three and nine month periods below include the following components:
Three Month Period Ended Nine Month Period Ended -------------------------------- -------------------------------- September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net revenues $ 0 $ 1,350,539 $ 1,507,664 $ 5,500,946 Cost of goods sold and operating expenses (28,258) (2,185,488) (4,955,439) (7,954,543) ------------ ------------ ------------ ------------ Loss from operations (28,258) (834,949) (3,447,775) (2,453,597) (Loss) gain on sale of assets (53,049) 0 11,156,177 0 ------------ ------------ ------------ ------------ (Loss) gain from discontinued operations $ (81,307) $ (834,949) $ 7,708,402 $ (2,453,597) ============ ============ ============ ============
3. LOSS PER SHARE Basic loss per share is determined based on the weighted average number of common shares outstanding during each period. Diluted loss per share is the same as basic loss per share as all common share equivalents are excluded from the calculation, as their effect is anti-dilutive. The weighted average number of common shares outstanding for the three-month periods ended September 30, 2004 and 2003 is 18,006,324 and 15,513,757, respectively. The weighted average number of common shares outstanding for the nine-month periods ended September 30, 2004 and 2003 is 17,983,343 and 15,008,425, respectively. The total number of options and warrants to purchase 7,095,507 and 7,315,425 shares of common stock that were outstanding at September 30, 2004 and 2003, respectively, were excluded from the computation of diluted earnings per share as the effect of these options and warrants would have been anti-dilutive. 4. INVENTORIES: Inventories consist of the following:
September 30, December 31, 2004 2003 ----------- ----------- Purchased materials $ 2,036,798 $ 1,869,542 Work in process 1,571,415 185,041 Finished goods 707,217 404,765 Spare parts and demonstration inventory 0 1,207,097 ----------- ----------- 4,315,430 3,666,445 Less allowance for inventory obsolescence (65,365) (1,189,460) ----------- ----------- $ 4,250,065 $ 2,476,985 =========== ===========
5. OTHER ASSETS: Other assets consists of the following:
September 30, 2004 ----------------------------------------------------- Gross Carrying Accumulated Amount Amortization Net Value ------------ ------------ ------------ Patents and copyrights $ 10,074,639 $ (2,334,333) $ 7,740,306 Prepaid services 1,600,000 (1,200,000) 400,000 Prepaid licensing fees 2,405,000 (864,833) 1,540,167 Other intangible assets 841,140 (46,730) 794,410 Deposits and other 588,912 0 588,912 ------------ ------------ ------------ $ 15,509,691 $ (4,445,896) $ 11,063,795 ============ ============ ============
10
December 31, 2003 ----------------------------------------------------- Gross Carrying Accumulated Amount Amortization Net Value ------------ ------------ ------------ Patents and copyrights $ 10,787,826 $ (2,638,862) $ 8,148,964 Prepaid services 1,600,000 (600,000) 1,000,000 Prepaid licensing fees 2,030,000 (415,333) 1,614,667 Other intangible assets 364,830 (364,830) 0 Deposits and other 549,990 0 549,990 ------------ ------------ ------------ $ 15,332,646 $ (4,019,025) $ 11,313,621 ============ ============ ============
6. STOCK OPTIONS For the three months ended September 30, 2004 the Company granted stock options under the 2000 Performance Equity Plan (the "2000 Plan") in connection with hiring and retention of employees to purchase an aggregate of 283,000 shares of its common stock at exercise prices ranging from $3.99 to $4.67 per share. The options granted vest ratably over five years and expire five years from the date they become vested. As of September 30, 2004 options to purchase 1,012,940 shares of common stock were available for future grants under the 2000 Plan. 7. STOCK AUTHORIZATION AND ISSUANCE On May 14, 2004 the Company issued 46,820 shares of restricted common stock, valued at approximately $206,000, or approximately $4.40 per share, under the terms of the 2000 Performance Equity Plan to former employees as part of the severance package pertaining to the discontinued operations of the video business unit. Stock-based compensation expense related to this transaction was included within discontinued operations in the accompanying statement of operations. The shares are no longer restricted, are fully vested and non-forfeitable and have been charged to expense as part of discontinued operations. 8. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity. 9. 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 is being held in escrow as security for the indemnification obligations of Consumerware. This purchase price holdback will be released in part on November 14, 2004 with the balance scheduled for release on February 14, 2005. 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 11 statement of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, the words or phrases "will likely result", "management expects" or "Company expects", "will continue", "is anticipated", "estimated" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including the timely development and acceptance of new products, sources of supply and concentration of customers. The Company has no obligation to publicly release the results of any revisions, which may be made to any forward-looking statements to reflect, anticipated events or circumstances occurring after the date of such statements. RESULTS OF OPERATIONS FOR EACH OF THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003 DISCONTINUED OPERATIONS On February 25, 2004, ParkerVision entered into an asset purchase agreement and various ancillary agreements ("Asset Agreement") with Thomson Broadcast & Media Solutions, Inc. ("Thomson") and Thomson Licensing, SA ("Thomson Licensing" and, together with Thomson, the "Purchasers") for the sale of all the assets of the Company's video business unit. On May 14, 2004, after receipt of shareholder approval of the transaction and satisfaction of the conditions to closing, the Company, Thomson and Thomson Licensing consummated the sale. The operations of the video business unit were classified as net (loss) gain from discontinued operations when the operations and cash flows of the business unit were eliminated from ongoing operations. The prior years' operating activities for the video business unit have also been reclassified to "Net (loss) gain from discontinued operations" in the accompanying Statements of Operations. Net (loss) gain from discontinued operations for the three and nine month periods below include the following components:
Three Month Period Ended Nine Month Period Ended --------------------------------- ------------------------------- September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net revenues $ 0 $ 1,350,539 $ 1,507,664 $ 5,500,946 Cost of goods sold and operating expenses (28,258) (2,185,488) (4,955,439) (7,954,543) ------------ ------------ ------------ ------------ Loss from operations (28,258) (834,949) (3,447,775) (2,453,597) (Loss) gain on sale of assets (53,049) 0 11,156,177 0 ------------ ------------ ------------ ------------ (Loss) gain from discontinued operations $ (81,307) $ (834,949) $ 7,708,402 $ (2,453,597) ============ ============ ============ ============
12 CONTINUING OPERATIONS REVENUES As a result of the sale of the video business unit assets on May 14, 2004, operations of the video division have been included in discontinued operations. Prior to the sale, essentially all of the Company's revenues were generated by its video division. Revenues for the three and nine months ended September 30, 2004 were $96,182 and $515,680, respectively. The Company had no revenues in the comparable periods in 2003. The Company initiated sales of its wireless products in the fourth quarter of 2003 through direct web sales and an e-retailer relationship. During the third quarter of 2004 the Company expanded its product distribution to additional retail outlets including, but not limited to, Comp USA. The Company currently has products in over 200 retail storefronts. In the first quarter of 2004, the Company recognized a $250,000 one-time previously deferred royalty payment upon termination of a licensing agreement. For sales through retail channels, the Company recognizes revenue on a sell-through basis, that is, when the product is sold through to the end-user. This is determined based on information received from the retailer. In addition, the Company currently offers a 30-day money back guarantee on its wireless products. Since the Company does not have sufficient history with sales of this nature to establish an estimate of expected returns, it has deferred 100% of wireless product sales to the end-user until expiration of the 30-day guarantee period. At September 30, 2004, the Company had deferred revenue from sales of wireless products of approximately $543,000. The Company anticipates growth in revenues and deferred revenues in the fourth quarter of 2004 and into 2005 as distribution of its products expands through these additional channels. While the Company strives for consistent revenue growth, there can be no assurance that consistent revenue growth or profitability can be achieved. The Company's ability to increase wireless product revenues will largely depend upon the rate at which the Company is able to secure additional distribution channels, increase brand recognition and customer demand for its products and increase production volumes sufficiently to meet such demand. 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 For the three and nine month periods ended September 30, 2004 gross margins based on aggregate revenues as a percentage of sales were 13.5% and 58.8%, respectively. The gross margins for products and royalties for the three and nine-month periods were as follows:
September 30, 2004 September 30, 2003 ----------------------------- -------------------------- $ % $ % ------------- ------------ ------------ ---------- Products Three month period $ 12,994 13.5% N/A N/A Nine month period 53,199 20.0% N/A N/A Royalties Three month period 0 0 N/A N/A Nine month period $250,000 100.0% N/A N/A
13 The Company's product margins in 2004 are reflective of significant excess capacity costs, high component costs due to initial low volume purchases, and start-up production costs for new products. The fluctuations in margin between periods in 2004 is due to shared absorption of excess capacity costs in the first half of 2004 between the Company's wireless and video divisions. Once production volume increases, management anticipates significant margin improvement resulting from higher volume price breaks on component purchases as well as improved absorption of capacity costs. The margin recognized on royalty revenues was due to the recognition of a one-time, previously deferred prepaid royalty in connection with the termination of the related licensing agreement. Gross margin may be negatively impacted in future periods by many factors, including fluctuating component costs, start-up costs associated with new product introductions, and sales price reductions on products due to competitive pressures. RESEARCH AND DEVELOPMENT EXPENSES The Company's research and development expenses for the three-month period ended September 30, 2004 were $2,784,904 as compared to $3,411,990 for the same period in 2003. For the nine-month period ended September 30, 2004, the Company's research and development expenses were $8,160,647 as compared to $10,305,302 for the same period in 2003. The decreases for the three and nine month periods of approximately $627,100 and $2,144,700, respectively, were 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 the first quarter of 2003 to the same period in 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. MARKETING AND SELLING EXPENSES Marketing and selling expenses for the three-month period ended September 30, 2004 were $622,253 as compared to $290,793 for the same period in 2003, and for the nine month period ended September 30, 2004 were $1,360,520 compared to $636,421 for the same period in 2003. The increases for the three and nine month period of approximately $ 331,500 and $724,100 were primarily due to increases in advertising and retail market launch expenses to promote the Company's wireless products and also the addition of marketing and customer support personnel to support such products. The Company anticipates marketing and selling expenses to increase in relation to increases in future sales and revenues. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the three month period ended September 30, 2004 were $1,668,862 as compared to $1,069,508 for the same period in 2003 and for the nine month period ended September 30, 2004 were $3,838,591 compared to $3,122,079 for the same period in 2003. The increases for the three and nine month periods of approximately $599,400 and $716,500 were 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 Company is in the process of reviewing, documenting, testing and evaluating the internal controls over financial reporting. Although management is diligently reviewing, documenting, testing and, in some cases, remediating deficiencies in internal control over financial reporting, in the case of those controls requiring remediation, there can be no assurance that remediation will be completed by December 31, 2004, or if completed, whether such remediation will be completed in sufficient time to verify the effectiveness of the remediated controls as of December 31, 2004. As a result there can be no assurance that management will be in a position to report that the Company's internal control over financial reporting is effective at December 31, 2004. 14 INTEREST AND OTHER INCOME Interest and other income consists of interest earned on the Company's investments, and net gains recognized on the sale of investments. Interest and other income for the three and nine month periods ended September 30, 2004 was $56,013 and $155,861, respectively, as compared to $64,089 and $367,037 for the same periods in 2003. The decreases of approximately $8,100 and $211,200 were primarily due to the continued use of cash and investments to fund operations and a decline in interest rates due to a change in the mix of the Company's investment portfolio. LOSS AND LOSS PER SHARE The Company had a net loss of approximately $(5,088,300) or $(0.28) per common share for the three-month period ended September 30, 2004 as compared to a net loss of approximately $(5,627,200) or $(0.36) for the same period in 2003, representing an decrease in net loss of approximately $538,900 or $0.08 per common share. The net loss decreased from approximately $(16,234,400) or $(1.08) per common share for the nine month period ended September 30, 2003 to approximately $(5,192,300) or $(0.29) per common share for the same period in 2004, representing a decrease in the net loss of approximately $11,042,100 or $0.79 per common share. The increase in net income and decrease in net loss for the three and nine month periods is primarily due to the net gain on the sale of the video business unit assets and decreased research and development expenses for the wireless business unit. The results of operations are as follows: (in thousands):
Three Months Ended Nine Months Ended ----------------------------- ---------------------------- September 30, September 30, September 30, September 30, 2004 2003 2004 2003 -------- -------- -------- -------- Loss from continuing $ (5,007) $ (4,792) $(12,900) $(13,781) operations (Loss) gain from discontinued operations (81) (835) 7,708 (2,453) -------- -------- -------- -------- Net loss $ (5,088) $ (5,627) $ (5,192) $(16,234) ======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2004, the Company had working capital of approximately $19.6 million including approximately $14.9 million in cash, cash equivalents and short-term investments. This represents a decrease of approximately $3.6 million from working capital of $23.2 million at December 31, 2003. This decrease is due to the use of cash to fund operations offset largely by the proceeds from the sale of the video business in the second quarter of 2004. Inventories have increased approximately $2,047,400 and $1,773,100 during the three month and nine-month periods ended September 30, 2004. The increase for the three-month period was due to the purchase of raw materials and build up of inventory for the Company's new wireless products. The increase for the nine-month period was also due to the purchase of raw materials and build up of inventory for the Company's new wireless products, offset somewhat by the sale of the video division inventory to Thomson in May of 2004. 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. 15 The overall revenues for 2004 will not be sufficient to cover the operational expenses of the Company for this fiscal year. The Company is increasing inventories and expanding sales, and it anticipates sales growth in 2005. It, however, does not expect that sales revenues will fully offset the expenses of operations in the near term. The expected continued losses and negative cash flow will continue to be funded by the use of its available working capital. The Company may seek, but does not have in place, operating lines of credit and other traditional forms of financing to increase its working capital to fund operating expenses. The continuation of the current scope of operations is dependant on increased revenues or additional funding or a combination of both. The failure to have sufficient revenues or capital will cause the Company to reassess its business plan and may require reductions in discretionary spending and curtailment of some operations. A reduction would have a material adverse effect on the Company's ability to achieve its long-term business objectives. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable ITEM 4. CONTROLS AND PROCEDURES. An evaluation of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2004 was made under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer. Based on that evaluation, they concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this report, there has been no significant change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES. SALES OF UNREGISTERED SECURITIES
Consideration received and Exemption If option, warrant or description of underwriting or from convertible security, Date of sale Title of Number other discounts to market price registration terms of exercise or security sold afforded to purchasers claimed conversion - -------------- -------------- ---------- ---------------------------------- -------------- -------------------------- 7/1/04 to Options to 283,000 Option granted - no 4(2) Expire five years from 9/30/04 purchase consideration received by date vested, options common stock Company until exercise vest ratably over five granted to years at exercise prices employees ranging from $3.99 to $4.67 per share
16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS. 31.1 Section 302 Certification of Jeffery L. Parker, CEO 31.2 Section 302 Certification of Cynthia Poehlman, CFO 32.1 Section 906 Certification 99.1 Risk Factors (B) REPORTS ON FORM 8-K. Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ParkerVision, Inc. Registrant November 8, 2004 By: /S/JEFFREY L. PARKER --------------------- Jeffrey L. Parker Chairman and Chief Executive Officer November 8, 2004 By: /S/CYNTHIA L. POEHLMAN ----------------------- Cynthia L. Poehlman Chief Financial Officer 17
EX-31.1 2 v08278_ex31-1.txt EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Jeffrey L. Parker, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of ParkerVision, Inc.; 2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, The registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: NOVEMBER 8, 2004 Name: /S/JEFFREY L. PARKER ---------------- -------------------- Title: CHIEF EXECUTIVE OFFICER EX-31.2 3 v08278_ex31-2.txt EXHIBIT 31.2 SECTION 302 CERTIFICATION I, Cynthia Poehlman certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of ParkerVision, Inc.; 2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: NOVEMBER 8, 2004 Name: /S/CYNTHIA POEHLMAN ---------------- --------------------- Title: CHIEF FINANCIAL OFFICER EX-32.1 4 v08278_ex32-1.txt EXHIBIT 32.1 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ParkerVision, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: NOVEMBER 8, 2004 Name: /S/JEFFREY L. PARKER ---------------- -------------------- Title: CHIEF EXECUTIVE OFFICER Dated: NOVEMBER 8, 2004 Name: /S/CYNTHIA POEHLMAN ---------------- ------------------- Title: CHIEF FINANCIAL OFFICER EX-99 5 ex99.txt EXHIBIT 99.1 RISK FACTORS Before making an investment in ParkerVision, you should carefully consider the risks described below. PARKERVISION HAS A HISTORY OF LOSSES WHICH MAY ULTIMATELY COMPROMISE OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN AND CONTINUE IN OPERATIONS. ParkerVision has had losses in each year since its inception in 1989, and it continues to have an accumulated deficit. To date, our D2D 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 will grow over time, but they will not bring the company to profitability in the near term. 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. PARKERVISION EXPECTS TO NEED ADDITIONAL CAPITAL IN THE FUTURE WHICH IF IT CANNOT RAISE WILL RESULT IN OUR NOT BEING ABLE TO IMPLEMENT OUR BUSINESS PLAN AS CURRENTLY FORMULATED. Because ParkerVision has had net losses and, to date, has not generated positive cash flow from operations, it has funded its operating losses from the sale of equity securities from time to time. ParkerVision anticipates that its business plan will continue to require significant expenditures for research and development, patent protection, manufacturing, marketing and general operations. ParkerVision's current capital resources are expected to sustain operations for at least the next ___ 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 ParkerVision. The sale of equity securities will result in dilution to the current stockholders' ownership. MICROELECTRONIC HARDWARE AND SOFTWARE 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, ParkerVision must continually devote substantial resources to developing and improving its technology and introducing new product offerings and creating new products. For example, in fiscal year 2003, we spent approximately $15,000,000 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 ParkerVision development lags, a competitive position or market window opportunity may be lost, and therefore the revenues or the potential of revenues of ParkerVision 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 ParkerVision's 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 ParkerVision's competitive and financial position will be adversely affected. In addition, perception of ParkerVision's business prospects will be impaired with an adverse impact on its 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. The ParkerVision 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 ParkerVision to predict the final economic benefits to users of the technology and the financial rewards that ParkerVision 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. 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. ParkerVision relies on its intellectual property, including patents and patent applications, to provide competitive advantage and protect it from theft of its intellectual property. ParkerVision believes that many of its 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, ParkerVision will suffer adverse effects from the loss of competitive advantage and its ability to offer unique products and technologies. Concomitantly, there would be an adverse impact on its 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. ParkerVision must obtain approvals from the United States Federal Communications Commission for the regulatory compliance of its products in the United States. ParkerVision also may have to obtain approvals from equivalent foreign government agencies where its products are sold internationally. Currently, ParkerVision has 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 the ability of ParkerVision to market its products and on the business prospects of ParkerVision. IF PARKERVISION CANNOT DEMONSTRATE THAT ITS 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, ParkerVision now faces competition from other chip suppliers such as Philips, Texas Instruments, Analog Devices and Broadcom, and also in finished products suppliers such as Netgear, Cisco/Linksys, Proxim/Orinoco, Symbol Technologies and D-Link. In respect of future product offerings, it is likely that ParkerVision will face competition from entities such as Qualcom, Nokia, Panasonic, Sony and Samsung. The ParkerVision technology may also face competition from other emerging approaches or new technological advances which are under development and have not yet emerged. PARKERVISION OBTAINS CRITICAL COMPONENTS FOR ITS PRODUCTS FROM VARIOUS SUPPLIERS AND LICENSORS, SOME OF WHICH ARE SINGLE SOURCES, WHICH MAY PUT PARKERVISION AT RISK IF THEY DO NOT FULFILL THE PARKERVISION REQUIREMENTS OR THEY INCREASE PRICES THAT CANNOT BE PASSED ON. ParkerVision obtains critical components from various suppliers and licensors, some of which are single sources. Because ParkerVision depends on outside sources for supplies and licenses of various parts of its products, ParkerVision is at risk that it may not obtain these components on a timely basis or may not obtain them at all. ParkerVision maintains inventories of many components, and to date, it has not experienced any significant problems with respect to obtaining components. In addition, ParkerVision has neither ended or had terminated any supply arrangements or license of critical components where an alternative has not been readily available. Notwithstanding its past history of supplies, maintaining inventory of some components and having licenses to produce in the event of non-supply, if ParkerVision is unable to obtain needed components, its business would be disrupted, and it would have to expend some of its resources to modify its products or find new suppliers and work with them to develop appropriate components. Although ParkerVision has been able to pass on price increases encountered to date, ParkerVision is at risk for increases in prices imposed by sources over which ParkerVision has no control. Any inability of ParkerVision to obtain components or absorb price increases may have an adverse effect on its own ability to fulfill orders and on its financial condition. PARKERVISION BELIEVES THAT IT WILL RELY, IN LARGE PART, ON KEY BUSINESS AND SALES RELATIONSHIPS FOR THE SUCCESSFUL COMMERCIALIZATION OF ITS D2D TECHNOLOGY, WHICH 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 its D2D technology, as part of its business strategy, ParkerVision 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 its Direct2Data.com website. ParkerVision's successful commercialization of the D2D technology will depend in part on its ability to meet its obligations under contracts in respect of its 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 the ParkerVision D2D technology which will have an adverse impact on the business development of ParkerVision and its ability to generate revenues and recover development expenses. AS PARKERVISION INCREASES ITS MARKETING EFFORTS, IT WILL BECOME MORE RELIANT ON THE SALES EFFORTS OF THIRD PARTIES THAT MAY EFFECT REVENUES. As ParkerVision increases its consumer product offerings, it 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, the company will have to maintain inventory and supply sufficient quantities of products to the sales outlets. Therefore, ParkerVision will have an increased exposure in its inventory quantities and investment and warranty obligations. ParkerVision 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 the company is unable to supply its 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 THE PARKERVISION PRODUCTS WILL REQUIRE EXPANSION OF ITS MARKETING STAFF AND ESTABLISHING MARKETING PROGRAMS, WHICH IF NOT EFFECTIVE, MAY RESULT IN LIMITED SALES. ParkerVision has initiated consumer sales of various products. To do this effectively and reach the mass market for electronic products, it will need to expand its sales staff and marketing programs. If the company is unable to find effective sales personnel or establish effective sales programs, it will not be able to fully realize on its 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. PARKERVISION HAS LIMITED EXPERIENCE IN THE COMMERCIAL DESIGN AND LARGE SCALE MANUFACTURING OF CONSUMER PRODUCTS THAT MAY RESULT IN PRODUCTION INADEQUACIES, DELAYS AND REJECTION. ParkerVision has limited experience in the commercial design and large scale manufacturing of consumer electronic products. From time to time it has experienced delays in starting production and maintaining production amounts at the quality levels necessary for its products. ParkerVision outsources the manufacture of certain components and will outsource some of its 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 ParkerVision 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. PARKERVISION IS HIGHLY DEPENDENT ON MR. JEFFERY PARKER AS ITS CHIEF EXECUTIVE OFFICER WHOSE SERVICES, IF LOST, WOULD HAVE AN ADVERSE IMPACT ON THE LEADERSHIP OF PARKERVISION AND INDUSTRY AND INVESTOR PERCEPTION ABOUT PARKERVISION'S FUTURE. Because of Mr. Parker's position in the company and the respect he has garnered in the industries in which ParkerVision operates and from the investment community, the loss of the services of Mr. Parker might be seen as an impediment to the execution of the ParkerVision 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. ParkerVision maintains key-employee life insurance for its benefit on Mr. Parker. IF PARKERVISION IS UNABLE TO ATTRACT THE HIGHLY SKILLED EMPLOYEES IT NEEDS 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 ITS PRODUCTS REQUIRE. The business of ParkerVision is very specialized, and therefore it is dependent on having skilled and specialized employees to conduct its research and development activities, manufacturing, marketing and support. The inability to obtain these kinds of persons will have an adverse impact on its business development because persons will not obtain the information or services expected in the markets and may prevent ParkerVision successfully implementing its current business plans. THE OUTSTANDING OPTIONS AND WARRANTS MAY AFFECT THE MARKET PRICE AND LIQUIDITY OF THE COMMON STOCK. At September 30, 2004, ParkerVision had 18,006,324 shares of common stock outstanding and had issued options and warrants to purchase shares of common stock. There are 5,737,918 options and warrants currently exercisable, and on each of December 31, 2004 and 2005, there will be 5,928,528 and 6,589,110, 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 by ParkerVision 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 ParkerVision's 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 the current stockholders' ownership of ParkerVision. PROVISIONS IN THE CERTIFICATE OF THE INCORPORATION AND BY-LAWS COULD HAVE EFFECTS THAT CONFLICT WITH THE INTEREST OF STOCKHOLDERS. Some provisions in the certificate of incorporation and by-laws of ParkerVision 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.
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