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| PRKR > SEC Filings for PRKR > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Forward-Looking Statements
When used in this Form 10-Q and in future filings by us 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
risks and uncertainties relating to timely development and acceptance of new
products, sources of supply and concentration of customers. We have no
obligation to publicly release the results of any revisions that may be made to
any forward-looking statements to reflect events or circumstances occurring
after the date of such statements.
General
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, ITT Corporation
("ITT") and a commercial chipset customer, represent licensing agreements
whereby our customers will incorporate our IP into their own wireless
semiconductor circuits and/or radio products. The third customer agreement, LG
Innotek, is for the joint development and marketing of wireless radio modules
that incorporate our technologies.
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. We had no revenue for the three and nine month periods ended September 30, 2009 and have used the proceeds from the sale of our equity securities to fund our operations.
Critical Accounting Policies
There have been no other changes in critical accounting policies from those
stated in our Annual Report on Form 10-K/A for the year ended December 31, 2008,
filed on July 2, 2009.
Results of Operations for Each of the Three and Nine Month Periods Ended September 30, 2009 and 2008
Liquidity and Capital Resources
As of September 30, 2009, we had cash and cash equivalents of approximately $3.3
million and working capital of approximately $1.7 million. This represents a
decrease of approximately $2.3 million from working capital at December 31,
2008. The decrease was due primarily to the $10.6 million used to fund
continuing operations and $0.7 million used for payment of patent costs offset
by $9.7 million in proceeds from the sale of equity securities in 2009.
Revenue for the remainder of 2009 will not be sufficient to cover our operational expenses for the remainder of 2009, and we expect our continued losses and use of cash to be funded from available working capital. These factors raise substantial doubt about our ability to continue as a going concern.
We need to raise additional working capital and/or significantly reduce our operating costs. The addition of working capital through the sale of equity securities will result in dilution to the current shareholders' ownership. Other financing alternatives such as loans or the sale of preferred stock may result in the imposition of operational limitations, covenants and payment obligations. Significant reductions in our operating costs may impair our ability to execute our future business plans.
The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from the sale of our products, additional funding, reducing expenses or a combination of the foregoing. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties for the quarterly period ended September 30, 2009.
Revenue and Gross Margin
We had no revenue or gross margin for the three and nine month periods ended
September 30, 2009 and 2008. In October 2009, we were engaged by ITT under a
fixed-price service contract to incorporate our d2p™ commercial integrated
circuits into a highly integrated transceiver for purposes of demonstrating the
performance of the device to one of ITT's military customers. The service
contract is valued at approximately $130,000 which we expect to recognize as
revenue over a period of up to six months.
In addition, in October 2009, our commercial chipset customer tested and accepted delivery of sample 3G handsets which were co-developed for purposes of verifying the d2p technology in working mobile handset implementations, testing the technology in actual network operation, and creating sales samples for handset OEM/ODMs who purchase chipsets from our licensee. We anticipate that our chipset customer will commence delivery of chipsets incorporating our technology in 2010 which will result in initial royalty revenue under our licensing agreement with them. Revenues from product royalties, however, are dependent on our customers' ability to bring products containing our technology to market. Their ability to market such products is contingent on uncertainties relating to product design, the market for cellular devices and general economic conditions. We can provide no assurance that our customers will be able to market such products within the anticipated time frame.
Research and Development Expenses
Our research and development expenses decreased approximately $484,000 or 11.5%
during the three month period ended September 30, 2009 when compared to the same
period in 2008. This decrease is primarily due to decreases in share-based
compensation expense of approximately $198,000, prototype fabrication and
materials costs of approximately $214,000, and software licensing and support
costs of approximately $146,000. These decreases were partially offset by an
increase in outside consulting fees of approximately $90,000.
Our research and development costs decreased approximately $626,000, or 5.7% during the nine month period ended September 30, 2009 when compared to the same period in 2008. This decrease was due to reductions in consulting fees of approximately $964,000, compensation and other personnel-related expenses of approximately $353,000, and software licensing and support costs of approximately $118,000. These reductions were offset by increases in share-based compensation expense of approximately $437,000, prototype fabrication costs of approximately $224,000, and amortization expenses of approximately $168,000.
Share-based compensation represents the GAAP expense related to employee equity awards including stock options, RSUs and restricted stock awards granted to executive and non-executive employees. Share-based compensation expense will increase from period to period as new equity awards are granted and will decrease as the awards become fully vested.
Prototype fabrication and materials costs generally vary period to period based on the number and timing of foundry runs, the materials specified and the number of variants requested on each run.
Software licensing and support costs represent the annual licensing and support maintenance costs for engineering design and other software tools. The decrease in these costs for the three and nine month periods is a result of re-negotiation of fees with various software providers as part of our cost-reduction measures implemented in late 2008 as well as changes in the software tools necessary to support our product designs.
Outside consulting services are utilized to supplement our internal engineering resources and the related fees are generally project-based and will vary based on the magnitude and timing of those projects. Overall, consulting fees have decreased from 2008 to 2009 as a result of the completion of certain development programs late in 2008. We will continue to utilize outside consulting services periodically to supplement our internal resources.
The reduction in personnel-related expenses for the nine months ended September 30, 2009 is primarily a result of the elimination of cash-based incentive compensation programs for 2009. These reductions are somewhat reflected in the increases in share-based compensation expense for the same period as equity awards were utilized to offset the loss of the cash-based incentive program for employees.
The increase in amortization expense for the nine-month period ended September 30, 2009 as compared to the same period in 2008 is primarily a result of the amortization of certain licenses purchased in 2008 which are generally amortized over a three year period.
Marketing and Selling Expenses
Marketing and selling expenses decreased approximately $193,000 or 27.8% during
the three month period ended September 30, 2009 when compared to the same period
in 2008. This decrease is primarily due to reduced consulting fees of
approximately $105,000 and reduced share-based compensation expense of
approximately $63,000.
Marketing and selling expenses decreased by approximately $374,000, or 18.4% during the nine month period ended September 30, 2009 when compared to the same period in 2008. This decrease was due primarily to reduced consulting fees of approximately $278,000, and reduced compensation and other personnel expenses of approximately $155,000, offset by an increase in share-based compensation of approximately $83,000.
The decreases in consulting fees results is a result of a reduction in services rendered coupled with a re-negotiation of fees with various sales and marketing consultants as part of our cost-reduction measures implemented in late 2008.
The reduction in personnel-related expenses is primarily a result of the elimination of cash-based incentive compensation programs for 2009. Share-based compensation represents the GAAP expense related to employee equity awards including stock options, RSUs and restricted stock awards granted to executive and non-executive employees and consultants. Share-based compensation expense will increase from period to period as new equity awards are granted and will decrease as the awards become fully vested.
General and Administrative Expenses
General and administrative expenses decreased approximately $271,000 or 15.2%
during the three month period ended September 30, 2009 when compared to the same
period in 2008. The decrease is due primarily to reductions in compensation,
travel, and other personnel-related expenses of approximately $128,000, a
decrease in board cash compensation expense of approximately $67,000, and
reductions in outside professional fees of approximately $114,000. These
decreases were partially offset by an increase in share-based compensation
expense of approximately $45,000.
General and administrative expenses decreased approximately $15,000 or 0.3% during the nine month period ended September 30, 2009 when compared to the same period in 2008. This decrease is primarily a result of reductions in compensation, travel, and other personnel-related expenses of approximately $282,000, a decrease in board cash compensation expense of approximately $186,000, and a decrease in outside professional fees of approximately $86,000, partially offset by an increase in share-based compensation expense of approximately $548,000.
The increase in share-based compensation is generally the result of compensation related to new equity awards in 2008 and 2009. For the three and nine month periods ended September 30, 2009, we recognized approximately $82,000 and $245,000, respectively, in share-based compensation expense related to nonqualified stock options granted to our non-employee directors in lieu of cash compensation for board and director fees for the same periods. In addition, in 2009, we granted equity-based awards to non-executive employees to offset the elimination of the 2009 cash incentive award program. The reduction in compensation and other personnel-related costs is primarily a result of the elimination of this cash incentive program for 2009.
The reduction in outside professional fees is, in part, a result of the use of share-based compensation awards to compensate outside consultants. In 2009, we granted an aggregate of 150,000 share options to two outside consultants for services to be performed over a twelve to fifteen month period. Approximately $84,000 and $109,000 in share-based compensation expense was recorded in the three and nine month periods ended September 30, 2009, respectively, related to these awards.
Interest (Expense) Income, net
Interest income and expense consists of interest earned on our investments and
other miscellaneous income as well as interest incurred on our capital lease
obligation. For the three and nine month periods ended September 30, 2009, we
incurred interest expense of approximately $4,000. Interest income and expense
decreased by approximately $82,000 or 104.8% during the three months ended
September 30, 2009 when compared to the same period in 2008. For the nine month
period ended September 30, 2009, interest income and expense decreased by
approximately $314,000, or 90.1% when compared to the same period in 2008. These
decreases are primarily due to lower interest rates and lower average cash
balances during the three and nine month periods ended September 30, 2009.
Loss and Loss per Share
Our net loss decreased approximately $867,000 or 13.1% during the three month
period ended September 30, 2009 when compared to the same period in 2008,
primarily due to a decrease in operating expenses of approximately $948,000. On
a per share basis, our loss decreased $0.08 per share, or 32% for the three
month period ended September 30, 2009 when compared to the same period in
2008. This decrease is a result of the decrease in operating expenses as well as
a 24.6% increase in the weighted average shares outstanding for the period.
Our net loss decreased approximately $701,000 or 4% during the nine month period ended September 30, 2009 when compared to the same period in 2008, primarily due to a decrease in operating expenses of approximately $1,015,000, offset by a decrease in interest income of approximately $314,000. On a per share basis, our net loss decreased $0.13 per share, or 19.7% for the nine month period ended September 30, 2009 when compared to the same period in 2008. This decrease is a result of the decrease in net loss as well as a 20.4% increase in the weighted average shares outstanding for the period.
Off-Balance Sheet Transactions, Arrangements and Other Relationships As of September 30, 2009, we had outstanding warrants to purchase 2,190,139 shares of common stock that were issued in connection with the sale of equity securities in various private placement transactions in 2000, 2001, 2005, 2006 and 2009. These warrants have exercise prices ranging from $1.88 to $56.66 per share, with a weighted average exercise price of $26.12 and a weighted average remaining contractual life of approximately 2.21 years. The estimated fair value of these warrants of $17,767,663 is included in shareholders' equity in our consolidated balance sheets.
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