Summary of PARKERVISION INC

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

We are in the business of designing, developing and selling our proprietary RF technologies and products for use in semiconductor circuits for wireless communication products. Since 2007, we have entered into three customer contracts for the incorporation of our technologies into wireless chipsets, modules and products. Two of the three customer agreements represent licensing agreements whereby our customers will incorporate our IP into their own wireless semiconductor circuits and/or radio products.

The two licensing customers include ITT and the Confidential Licensee. The Confidential Licensee is a fabless supplier of chipsets that support 2G, 2.5G and 3G mobile standards with engineering design and sales locations in both North America and Asia. The Confidential Licensee designs and supplies chipsets, and related handset reference designs, predominantly to ODMs for incorporation into mobile handsets. The Confidential Licensee has reported three of the top five handset manufacturers among its customer base.

We have also recently entered into an agreement with LGI for the joint development and marketing of wireless radio modules that incorporate our technologies. These modules, which will incorporate unpackaged integrated RF circuits supplied by us, are being designed for 3G mobile handset and data card applications.

Since exiting our retail product business in 2005, we have generated no product or royalty revenue from our wireless RF technologies. We anticipate initial shipments of products incorporating our technologies to commence in 2009. We recognized service revenue in 2007 resulting from engineering design services provided to one of the licensees of our technology.

Our ability to generate revenues sufficient to offset costs is subject to our ability to successfully support our customers in completing their initial product designs incorporating our technologies and expand our market opportunities through additional product offerings with our current customers and/or the addition of new customers.

We believe our technology has substantial advantages over competing technologies, especially in the 3G mobile handset market and generations that are likely to evolve beyond 3G, such as 4G mobile handset standards and applications. We have made significant investments in developing our technologies and products, the returns on which are dependent upon the generation of future revenues for realization. Since we have not yet generated revenues sufficient to offset our operating expenses, we have mostly relied on proceeds from the sale of equity securities to fund our operations. We intend to continue to use our working capital to support future marketing, sales, research and development and general operations.

Critical Accounting Policies

We believe that the following are the critical accounting policies affecting the preparation of our consolidated financial statements:

Intangible Assets

Patents, copyrights and other intangible assets are amortized using the straight-line method over their estimated period of benefit. We estimate the economic lives of our patents and copyrights to be fifteen to twenty years. We estimate the economic lives of other intangible assets, including licenses, based on estimated technological obsolescence, to be two to five years, which is generally shorter than the contractual lives. Periodically, we evaluate the recoverability of our intangible assets and take into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists ("Triggering Event"). Based on our cumulative net losses and negative cash flows from operations to date, we assess our working capital needs on an annual basis which is considered to be a Triggering Event for purposes of evaluating the recoverability of our intangible assets. As a result of our evaluation, and the significant excess of our market capitalization over our net book value at December 31, 2008, we determined that no impairment exists with regard to our intangible assets.

Accounting for Share-Based Compensation

We account for our share-based compensation plans in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") 123(R), Share-Based Payment, which we adopted January 1, 2006 using the modified prospective method of adoption. Under this method, the fair value of share-based awards is determined using various valuation models which require the use of highly subjective assumptions. These assumptions include estimating how long employees will retain their stock options before exercising them, the volatility of our common stock price over the expected life of the equity award, and the rate at which equity awards will be forfeited unvested. Changes in these subjective assumptions can materially affect the estimate of fair value of share-based compensation and consequently, the related amount recognized as expense in the consolidated statements of operations.

We elected to adopt the alternative short-cut method described in FASB Staff Position 123R-3 for determining the beginning balance of the additional paid-in-capital pool ("APIC pool") related to the tax effects of employee share-based compensation and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows for the income tax effects of employee share-based compensation awards that were outstanding upon the adoption of SFAS 123(R).

Revenue Recognition

We did not recognize any product or royalty revenue in 2008, 2007 or 2006.

We account for service revenue under the provisions of Staff Accounting Bulletin No. 104 ("SAB 104"), Revenue Recognition in Financial Statements and AICPA Statement of Position No. 81-1 ("SOP 81-1"), Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Under the provisions of SAB 104 and SOP 81-1, we recognize revenue when there is persuasive evidence of an arrangement, services have been rendered, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured. We use the percentage-of-completion method of accounting for cost reimbursement-type contracts which specify a certain billable fee amount. Revenues are recognized as costs are incurred assuming that collection is reasonably assured. Our cost of sales includes the direct labor costs of engineering staff providing services under these contracts, as well as indirect costs including depreciation and amortization and allocated facilities costs.

Income Taxes

The provision for income taxes is based on loss 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. 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.

In addition, on January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109, ("FIN 48"). FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on recognition and classification of income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

Recent Accounting Pronouncements

In February 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP FAS 157-2 partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of the FSP. We have evaluated FSP FAS 157-2 and expect it to have no impact on our consolidated financial statements when adopted.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets. This statement amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 is effective for fiscal years beginning after December 31, 2008 and early adoption is prohibited. We have evaluated FSP No. 142-3 and expect it to have no impact on our consolidated financial statements when adopted.

In June 2008, the FASB issued FSP No. EITF 03-6-1 ("FSP 03-6-1"), Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. This statement concluded that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders and therefore are considered participating securities for purposes of computing earnings per share. FSP 03-6-1 is effective January 1, 2009. We have evaluated FSP 03-6-1 and expect it to have no impact on our consolidated financial statements when adopted as we currently have no participating securities, as defined by this statement.

Results of Operations for Each of the Years Ended December 31, 2008, 2007 and 2006

Revenues and Gross Margins

We had no product or royalty revenues for the years ended December 31, 2008, 2007 or 2006.

For the year ended December 31, 2007, we recognized approximately $284,000 in service revenue and approximately $32,000, or 11%, in gross margin related to engineering consulting services provided to ITT. These services included analysis and evaluation of architectural design alternatives for incorporation of our d2p technology into RF circuits based on various product specifications provided by ITT. Cost of sales for engineering services includes the direct labor costs of engineering staff, as well as depreciation, amortization and allocated facilities costs. Indirect costs are generally allocated to cost of sales based on a percentage of the labor hours incurred for customer design support. Allocated indirect costs represent approximately 38% of the total cost of sales.

We anticipate both royalty and design service revenue from our customers in 2009. Based on our understanding of ITT's product deployment programs and targeted sales milestones, we anticipate initial revenue in 2009 from ITT's programs. We believe we will achieve cumulative royalties of approximately $25 million over the multi-year contract with ITT based on established royalty rates and our understanding of ITT's product plans.

In addition, we delivered production-ready IC designs and sample chips to our Confidential Licensee in December 2008 and continue to work closely with them to transition these designs to volume production chipsets, which they will manufacture through their own foundry relationships. Royalties from our Confidential Licensee will be earned as this licensee sells its chipset solution, incorporating our technologies, to mobile handset OEMs and ODMs. We anticipate that royalties from this customer will range from approximately $5 million to $10 million in the first full year of their chipset shipments, depending upon the customer's product mix and unit volume as well as the timing of incorporation of our receiver technology into their chipsets. We also believe the opportunity exists to significantly expand our royalty revenue from this customer based on the expected growth of the market in which their products are targeted and our customer's ability to capture increased market share for their products.

Based on our relationship and initial program plan with LGI, we expect to begin generating revenue from the sale of unpackaged ICs as early as the first quarter of 2010. The supply agreement terms between us and LGI will be completed as we finalize the product specifications under the program plan which we believe will occur during the first half of 2009.

Research and Development Expenses

Research and development expenses increased approximately $3.9 million, or 37%, from 2007 to 2008 and approximately $1.2 million, or 12%, from 2006 to 2007.

The increase in research and development expenses from 2007 to 2008 was primarily due to increases in personnel and related costs, including taxes, benefits, travel costs and employee share-based compensation expense; outside engineering design and consulting fees; prototype production costs; and software development tools and related maintenance costs.

Personnel and related costs, net of share-based compensation, increased approximately $580,000 from 2007 to 2008 as a result of compensation increases for existing engineering staff, the addition of personnel, including a vice-president of engineering, and increased travel expense for engineering travel to both customer and outside consultant facilities, offset by decreases in cash incentive bonuses from 2007 to 2008. Employee share-based compensation expense increased by approximately $995,000 from 2007 to 2008, primarily due to the noncash expense related to restricted shares and restricted share units issued to engineering executives and other employees in 2008 as long-term incentive compensation and in lieu of cash incentive bonuses.

Outside design consulting services increased approximately $1,710,000 from 2007 to 2008 as a result of the continued use of outside firms to supplement in-house engineering resources, particularly with regard to our RF receiver IC development and the design layout of sample ICs for the digital engine that controls our RF transmit ICs. Prototype IC production costs increased approximately $305,000 from 2007 to 2008. We maintain a fairly regular cycle of prototype chip runs; however, the fabrication costs vary based on the materials specified and the number of variants requested on each run. In 2008, we produced certain sample ICs on a TSMC foundry process in addition to our regular foundry runs with IBM. Software maintenance and support costs for engineering design software increased approximately $230,000 from 2007 to 2008 due to additional software tools and related maintenance costs required for IC design work.

The increase in research and development expenses from 2006 to 2007 was primarily due to increases in personnel cost and design consulting fees. Personnel and related costs increased approximately $640,000 due to the addition of personnel, compensation increases for existing engineering staff and increases in performance bonuses earned in 2007 over 2006. Outside engineering design consulting costs increased approximately $550,000 from 2006 to 2007 due to increased use of outside design services to supplement in-house engineering resources, offset by the expiration of a share-based consulting agreement which reduced stock-based compensation expense.

The markets for our products and technologies are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Our ability to successfully develop and introduce, on a timely basis, new and enhanced products and technologies will be a significant factor in our ability to grow and remain competitive. Although we anticipate decreases in our research and development expenses in 2009, particularly with regard to outside design consulting services, we are committed to continue investing in our technology and product development and therefore we anticipate that we will use a substantial portion of our working capital for research and development activities in 2009.

Marketing and Selling Expenses

Marketing and selling expenses decreased approximately $0.1 million or 3.7%, from 2007 to 2008 and increased by approximately $0.6 million or 27%, from 2006 to 2007.

The decrease in marketing and selling expenses from 2007 to 2008 was primarily due to decreases in personnel and related costs and non-employee share-based compensation, partially offset by increases in outside consulting fees and employee share-based compensation expense.

Personnel costs, net of share-based compensation, decreased from 2007 to 2008 by approximately $160,000, primarily due to a reduction in employee cash bonuses, partially offset by increases in sales and marketing employee travel costs. Non- employee share-based compensation decreased approximately $135,000 from 2007 to 2008 primarily as a result of the reversal of previously recognized compensation expense on performance-based options which expired unvested in 2008. These decreases were partially offset by increases in employee share-based compensation expense of approximately $205,000 primarily due to the noncash expense related to restricted stock units issued to sales and marketing executives and other employees in 2008 as long-term incentive compensation.

The increase in marketing and selling expenses from 2006 to 2007 was primarily due to increases in personnel costs, outside consulting and other professional fees and employee share-based compensation expense. Personnel costs increased approximately $230,000 due to increases in personnel late in 2006, compensation increases for existing employees and increases in performance bonuses earned from 2006 to 2007. Outside consulting and other professional fees increased approximately $280,000 from 2006 to 2007 due to the use of consultants for expansion of network carrier and other potential customer relationships and legal fees incurred in relation to initial licensing agreements. Employee related share-based compensation expense increased approximately $60,000 due to additional share based awards for sales and marketing employees.

We are committed to continuing our investment in marketing and selling efforts in order to continue to increase market awareness and penetration of our products and technologies, although we do not anticipate any significant increases in overall sales and marketing expenses in 2009.

General and Administrative Expenses

General and administrative expenses consist primarily of executive, finance and administrative personnel costs and costs incurred for insurance, shareholder relations and outside professional services. Our general and administrative expenses increased by approximately $0.5 million, or 9%, from 2007 to 2008 and by $0.5 million, or 9%, from 2006 to 2007.

The increase in general and administrative expenses from 2007 to 2008 is primarily due to increases in share-based compensation expense partially offset by decreases in other personnel and related costs, insurance and corporate travel costs.

Share-based compensation expense increased approximately $825,000 from 2007 to 2008, largely due to restricted stock units issued to named executives and other employees in 2008 as long-term incentive compensation. This increase is partially offset by a decrease in other personnel and related costs of approximately $140,000, primarily from a reduction in employee cash bonuses in 2008. In addition, the cost of our directors' and officers' liability insurance decreased by approximately $85,000 from 2007 to 2008 due to general market conditions and our corporate travel expenses decreased approximately $75,000.

The increase in general and administrative expenses from 2006 to 2007 is due to increases in personnel costs and employee share-based compensation, offset partially by decreases in insurance costs. Personnel costs increased approximately $340,000 from 2006 to 2007 primarily due to an increase of approximately $290,000 in performance bonuses earned in 2007 over 2006. These bonuses were largely paid through the issuance of stock awards to our chief executive officer and chief financial officer in early 2008. Employee stock-based compensation expense increased approximately $250,000 from 2006 to 2007 due largely to the fair value expense related to long-term incentive awards for our executive officers in 2006 and 2007. The cost of our directors' and officers' liability insurance decreased by approximately $110,000 from 2006 to 2007 due to general market conditions. In addition, consulting and other professional fees, including share-based consulting fees, decreased approximately $50,000 from 2006 to 2007. This decrease is primarily the result of increases in accounting and consulting fees related to our financial accounting system conversion in 2007 offset by a decrease in share-based consulting fees primarily from a consulting agreement that expired in 2006.

Interest Income and Other

Interest income and other consist of interest earned on our investments, net gains recognized on the sale of investments, and other miscellaneous income and expense. Interest income and other decreased approximately $0.5 million from 2007 to 2008 and approximately $0.2 million from 2006 to 2007. The decrease in interest income and other from 2007 to 2008 is primarily the result of lower average cash balances and interest rates during 2008. The decrease in interest income and other from 2006 to 2007 is primarily due to a reduction in miscellaneous income of approximately $110,000.

Loss and Loss per Common Share

Our net loss increased by approximately $4.9 million or $0.14 per common share from 2007 to 2008 and increased by approximately $2.4 million or $0.06 per common share from 2006 to 2007. The increase in net loss from 2007 to 2008 is primarily due to a $4.3 million or 22.5% increase in operating expenses, primarily related to research and development activities. The increase in net loss from 2006 to 2007 is primarily due to a $2.3 million or 13% increase in operating expenses.

Liquidity and Capital Resources

At December 31, 2008, we had working capital of approximately $4.0 million including approximately $4.8 million in cash and cash equivalents. For the year ended December 31, 2008, our cash and cash equivalents decreased by $8.6 million from the previous year. This decrease is a result of approximately $17.1 million used for operations and $1.8 million for payments of patent costs and purchases of software licenses and fixed assets used in operations. This cash usage was partially offset by $8.9 million in proceeds from the March 2008 sale of equity securities and approximately $1.3 million in proceeds received from the exercise of options and warrants in 2008.

For the year ended December 31, 2007, our cash and cash equivalents increased by $0.2 million from the previous year. This increase was a result of approximately $8.4 million in proceeds from the February 2007 sale of equity securities and approximately $6.7 million received from the exercise of approximately 800,000 options and warrants in 2007, offset by the use of approximately $13.5 million in cash for operating activities and approximately $1.4 million for the purchase of property and equipment and for payment of patent costs in 2007.

For the year ended December 31, 2006, our cash and cash equivalents increased approximately $3.0 million as a result of $16.2 million in proceeds from the sale of equity securities, $0.2 million received from the exercise of options and warrants, and $0.3 million in proceeds from the maturity of investments, offset by $11.4 million of cash used for operations and an additional $2.4 million used for the purchase of property and equipment and for payment of patent costs.

At December 31, 2008, we were not subject to any significant commitments to make additional capital expenditures.

Our future business plans call for continued investment in sales, marketing, customer support and product development for our technologies and products. Our ability to generate revenues sufficient to offset costs is subject to our ability to successfully support our customers in completing their initial product designs incorporating our technologies and our ability secure a reasonable share of the market through additional product offerings with our current customers and/or the addition of new customers. We expect that revenue for 2009 will not be sufficient to cover our operational expenses for 2009, and that our expected continued losses and use of cash will be funded from available working capital. We assessed our short-term liquidity needs based on the assumption that our working capital must be sufficient to cover our operational expenses for 2009 with an assumption of minimal revenue.

We expect our overall operating costs in 2009 will be lower than those incurred in 2008 as a result of the elimination of certain non-recurring expenditures related to product development activities in 2008 as well as certain cost-reduction measures implemented by us. The non-recurring product development expenditures primarily include outside engineering design resources utilized in 2008 to assist in the layout of certain ICs under programs which were largely completed by the end of 2008. In addition, we anticipate reductions in travel costs, board expenses, professional fees and software support costs, among others, based on cost-reduction measures that we have taken internally along with cost negotiations with various outside suppliers.

On January 5, 2009, we filed a Shelf for the offering of various securities, up to $25 million, over a period of up to three years. The Shelf, which was declared effective January 20, 2009, is intended to provide flexibility for our future capital needs and may be used to fund working capital, capital expenditures, vendor purchases, and other capital needs. On March 3, 2009, we completed the sale of an aggregate of 5,994,963 shares of our common stock and 431,320 warrants under the Shelf for net proceeds, after underwriting discounts, placement fees and offering expenses, of approximately $9.4 million. We plan to use these proceeds, together with the $4.8 million in cash and cash equivalents at December 31, 2008, to fund our 2009 working capital needs.

We believe our current capital resources, together with the proceeds from the March 2009 equity financing and our 2009 cost reduction efforts will be sufficient to support our liquidity requirements at least into the first quarter of 2010. In the event that sufficient working capital is not available to meet our 2009 liquidity needs, we believe additional liquidity could be obtained through the issuance of securities under our Shelf in lieu of cash payments for certain vendor purchases, the surrender of key-man life insurance policies for their cash value, and/or additional cost reduction measures. In addition, we may be able to meet certain liquidity needs through short or long-term debt financing, although there can be no assurance that such financing will be available to us. We currently have no outstanding long-term debt obligations.

The long-term continuation of our business plan through 2009 and beyond is dependent upon the generation of sufficient revenues from our technologies and products to offset expenses. In the event that we do not generate sufficient . . .