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PRKR > SEC Filings for PRKR > Form 10-Q on 14-Nov-2011All Recent SEC Filings

Show all filings for PARKERVISION INC

Form 10-Q for PARKERVISION INC


14-Nov-2011

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We believe that it is important to communicate our future expectations to our shareholders and to the public. This report contains forward-looking statements, including, in particular, the statements about our future plans, objectives, and expectations contained in this Item. When used in this report and in future filings by the Company with the Securities and Exchange Commission ("SEC"), the words or phrases "will likely result", "management expects", "we expect", "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, including the risks and uncertainties described in this report and in our other reports filed under the Securities Exchange Act of 1934, as amended, that could cause actual results to differ materially from historical results and those presently anticipated or projected. Examples of such risks and uncertainties include those relating to the timely development and commercial acceptance of new products and technologies, reliance on key business and sales relationships, and reliance on our intellectual property. We have no obligation to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Overview

The following discussion should be read along with the unaudited condensed financial statements included in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011, which provides a more thorough discussion of our products and services, industry outlook, and business trends.

We are in the business of designing, developing and selling our proprietary RF technologies and devices for use in semiconductor circuits for wireless communication products. Since 2005, we have generated no product or royalty revenue from our wireless RF technologies. In the first quarter of 2011, we completed a testing, verification and acceptance process for our first RF product which interfaces directly with CDMA baseband processors built by our baseband partner, VIA Telecom Inc. ("VIA"), for use in 3G mobile applications. We are currently working with VIA and one of their OEM customers on the completion and testing of a mobile handset design which incorporates our RF product and that we believe will result in initial orders for this product.

Recent Developments

On July 20, 2011, we filed a complaint in the United States District Court of the Middle District of Florida against Qualcomm Incorporated ("Qualcomm") seeking unspecified damages and injunctive relief for infringement of seven of our patents related to radio-frequency receivers and the down-conversion of electromagnetic signals (the "Complaint"). On September 16, 2011, Qualcomm filed its Answer and Counterclaim to our Complaint (the "Counterclaim") in which Qualcomm denies infringement and alleges invalidity and unenforceability of each of the seven patents. Qualcomm also named the law firm of Sterne, Kessler, Goldstein & Fox PLLC ("SKGF") as a co-defendant in its Counterclaim and further alleged that we aided and abetted SKGF in its alleged breach of fiduciary duty to Qualcomm and tortiously interfered with Qualcomm's contractual relationship with SKGF. On November 7, 2011, we filed a motion to dismiss nine counts of Qualcomm's Counterclaim and a motion to strike certain of


Qualcomm's affirmative defenses. SKGF also filed a motion to dismiss Qualcomm's claims against them on November 7, 2011. Discovery in the case has not yet commenced and the Court has not set a trial date for the case. At this time, we do not believe it is possible to predict the outcome of these proceedings.

Liquidity and Capital Resources

On September 14, 2011, we completed the sale of an aggregate of 7,800,000 shares of our common stock, at a price of $0.88 per share, to two institutional investors in a registered offering under our shelf registration statement filed on September 14, 2009 (File No. 333-161903) (the "September 2009 Shelf"). The aggregate net proceeds from this offering were approximately $6.5 million, after deduction of placement agent fees and other offering costs.

On March 30, 2011, we completed the sale of an aggregate of 3,332,117 shares of our common stock at a price of $0.71 per share and 2,691,360 units, each consisting of one share of common stock and 0.3 of a warrant to purchase common stock, at a price of $0.81 per unit, to a limited number of institutional and other investors in a registered offering under our September 2009 Shelf. The aggregate net proceeds from this offering were approximately $4.1 million, after deduction of placement agent fees and other offering costs.

As of September 30, 2011, we had working capital of approximately $7.8 million which represented an increase of approximately $1.7 million from working capital at December 31, 2010. The increase was primarily a result of proceeds from the sale of equity securities in 2011 of approximately $10.6 million, offset by the use of approximately $7.9 million to fund operations and the investment of approximately $0.5 million in intellectual property filings.

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 to secure a reasonable share of the market through additional product offerings with our current customers and/or the addition of new customers.

We expect to receive initial orders for our RF products in 2011; however, we do not anticipate that these orders will generate product revenue until 2012. We expect that our continued losses and use of cash will be funded from our working capital, consisting of cash, cash equivalents and available for sale securities of $8.8 million at September 30, 2011. In addition, we expect that available working capital will be used for production tooling and other initial production start-up costs. Furthermore, we anticipate using available working capital to fund a portion of the legal expenses incurred in our patent infringement litigation against Qualcomm. The remaining legal expenses incurred will be funded by one of our litigators in exchange for a contingent fee which is determined as a percentage of any litigation proceeds as defined by our legal retention agreement. We currently have no significant commitments for capital expenditures.

We believe our current capital resources are sufficient to support our liquidity requirements through 2011; however, these resources will not be sufficient to support our liquidity requirements for the next twelve months without further cost containment measures that, if implemented, may jeopardize our future growth plans. We may be able to meet future liquidity needs through the issuance of additional equity securities under our outstanding shelf registration statements or in private placements or 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 significant long-term debt obligations.

The long-term continuation of our business plan beyond 2011 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 revenues, we will be required to obtain additional funding through financings and/or


further reduce operating costs. Failure to generate sufficient revenues, raise additional capital through debt or equity financings, and/or further reduce operating costs could have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business objectives.

Results of Operations for Each of the Three and Nine months Ended September 30, 2011 and 2010

Revenue and Gross Margin
We had no product or royalty revenue for the three or nine month periods ended September 30, 2011. For the nine months ended September 30, 2010, we recognized approximately $17,000, or 27%, in gross margin on approximately $64,000 in engineering services revenue for the completion of a fixed-price service contract with ITT Corporation ("ITT"). The contract was for the purpose of incorporating our commercially developed d2p integrated circuits into a highly integrated transceiver for demonstration of device performance to one of ITT's military customers.

Gross margin for engineering services is calculated as the excess of engineering services revenue over cost of sales. Cost of sales for engineering services includes the direct labor costs, as well as overhead and other indirect costs including depreciation and allocated facilities costs. Indirect costs are allocated to cost of sales on a direct labor hour basis.

Research and Development Expenses
Research and development expenses consist primarily of engineering and related management and support personnel costs; fees for outside engineering design services which we use from time to time to supplement our internal resources; amortization and depreciation expense related to our patents and other assets used in product development; prototype production and materials costs, which represent the fabrication and packaging costs for prototype integrated circuits, as well as the cost of supporting components for prototype board development; software licensing and support costs, which represent the annual licensing and support maintenance for engineering design and other software tools; and rent and other overhead costs for our engineering design facility. Personnel costs include share-based compensation amounts which have been determined based on the grant date fair value of equity-based awards to our employees and then recorded to expense over the vesting period of the award.

Our research and development expenses decreased approximately $177,000, or 7%, during the three months ended September 30, 2011 when compared to the same period in 2010. This decrease is primarily due to decreases in share-based compensation of approximately $225,000 depreciation and amortization expense of approximately $90,000, and prototype costs of approximately $87,000, offset by increases in outside engineering services of approximately $178,000.

Our research and development expenses decreased approximately $521,000, or 8%, during the nine months ended September 30, 2011 when compared to the same period in 2010. This decrease is primarily due to decreases in share-based compensation of approximately $308,000 depreciation and amortization expense of approximately $287,000, prototype costs of approximately $321,000, and personnel costs of approximately $76,000, offset by increases in outside engineering services of approximately $391,000 and personnel travel expenses of approximately $113,000.

The decrease in share-based compensation for the three and nine month periods is primarily the result of executive and other employee awards from prior periods becoming fully vested in 2010 and 2011. The decrease in depreciation and amortization expense for the three and nine month periods is primarily the result of decreased amortization on third-party licenses related to prototype designs. The decrease in prototype fabrication and materials costs is a result of reduced prototype runs of our integrated circuits at the IBM and TSMC foundries in 2011 as we focused our resources on implementing our integrated circuits into designs for VIA customers. The decrease in personnel costs from 2010 to 2011 is primarily a result of employee attrition in 2010, partially offset by recruiting and other new employee costs in 2011.


Increases in outside engineering services are a result of timing of various projects related to supporting mobile handset designs by VIA customers and readying products for production. The increase in personnel travel is primarily the result of increased domestic and international travel to provide technical support to VIA and potential customers for our CDMA-based product during 2011.

We expect to continue to invest a significant percentage of our current working capital in our research and product development activities in future periods. However, these expenses will fluctuate on a quarter to quarter basis depending on the timing of various projects.

Marketing and Selling Expenses
Marketing and selling expenses consist primarily of marketing and sales personnel costs, including share-based compensation and travel costs, and outside professional fees. Marketing and selling expenses decreased approximately $86,000, or 20%, during the three months ended September 30, 2011 when compared to the same period in 2010. This decrease is primarily due to a reduction in employee share-based compensation expense of approximately $115,000, offset by an increase in outside professional fees of approximately $32,000.

Marketing and selling expenses decreased approximately $309,000, or 23%, during the nine months ended September 30, 2011 when compared to the same period in 2010. This decrease is primarily due a reduction in employee share-based compensation expense of approximately $276,000.

The decrease in share-based compensation expense for the three and nine month periods is the result of prior period awards becoming fully vested in 2010 and 2011. The increase in outside professional fees for the three month period ended September 30, 2011 is a result of outsourced support for a VIA customer in Asia.

General and Administrative Expenses
General and administrative expenses consist primarily of executive, director, finance and administrative personnel costs, including share-based compensation, and costs incurred for insurance, shareholder relations and outside professional services.

General and administrative expenses increased approximately $39,000, or 3%, during the three months ended September 30, 2011 when compared to the same period in 2010. This increase is primarily due to increases in outside professional fees of approximately $279,000, offset by decreases in employee share-based compensation expense of approximately $223,000 and decreases in cash fees and expenses paid to our non-employee directors of approximately $31,000.

General and administrative expenses decreased approximately $220,000, or 6%, during the nine months ended September 30, 2011 when compared to the same period in 2010. This decrease is primarily due to a reduction in employee share-based compensation expense of approximately $529,000 and a decrease in cash fees and expenses paid to our non-employee directors of approximately $74,000, offset by increases in outside professional fees of approximately $368,000.

The decrease in share-based compensation for the three and nine month periods ended September 30, 2011 was primarily the result of prior period executive awards becoming fully vested in 2010 and 2011. This decrease was partially offset by an increase in equity compensation related to non-employee directors. Our non-employee directors waived a portion of their 2011 cash fees in favor of equity compensation, in the form of non-qualified stock options, with an equal value. The increase in outside professional fees for the three and nine month periods is primarily a result of legal and other expert professional services related to our patent litigation against Qualcomm.


Net Loss and Net Loss per Common Share
Our net loss decreased approximately $223,000, or 6%, during the three months ended September 30, 2011 when compared to the same period in 2010. This decrease is a result of the $225,000, or 6%, decrease in operating expenses. On a per share basis, our loss decreased $0.04 per common share, or 40%, for the three months ended September 30, 2011 when compared to the same period in 2010. This decrease is a result of the 6% decrease in operating expenses as well as a 47% increase in the weighted average shares outstanding for the period.

For the nine months ended September 30, 2011, our net loss decreased approximately $1,056,000 or 9%, when compared to the same period in 2010. This decrease is a result of the $1,050,000, or 9%, decrease in operating expenses. On a per share basis, our loss decreased $0.09 per common share, or 32%, for the nine months ended September 30, 2011 when compared to the same period in 2010. This decrease is a result of the 9% decrease in operating expenses as well as a 40% increase in the weighted average shares outstanding for the period.

Off-Balance Sheet Transactions, Arrangements and Other Relationships As of September 30, 2011, we had outstanding warrants to purchase 6,127,340 shares of common stock that were issued in connection with the sale of equity securities in various public and private placement transactions in 2000, 2009, 2010, and 2011. These warrants have exercise prices ranging from $0.54 to $56.66 per share, with a weighted average exercise price of $8.40 and a weighted average remaining contractual life of approximately 3.5 years. The estimated fair value of these warrants of $14,992,759 is included in shareholders' equity in our balance sheets.

Critical Accounting Policies
There have been no changes in critical accounting policies from those stated in our Annual Report on Form 10-K for the year ended December 31, 2010.

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