ParkerVision, Inc.
PARKERVISION INC (Form: 10-K, Received: 03/08/2007 15:54:36)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 1O-K
 
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES ACT OF 1934
For the transition period from ________to__________

Commission file number   0-22904

PARKERVISION, INC.
(Exact name of registrant as specified in its charter)
 
Florida
59-2971472
(State of Incorporation)
(I.R.S. Employer ID No.)

7915 Baymeadows Way, Suite 400
Jacksonville, Florida 32256
(904) 737-1367
(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
COMMON STOCK RIGHTS

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __ No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)   of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (X).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated file (as defined in Rule 12b-2 of the Exchange Act).
 
Large accelerated filer ___
Accelerated filer X
Non-accelerated filer __
 

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes __ No X

As of June 30, 2006, the aggregate market value of the Issuer's Common Stock, $.01 par value, held by non-affiliates of the Issuer was approximately $171,972,947 (based upon $9.10 share closing price on that date, as reported by The Nasdaq Global Market).

As of February 28, 2007, 24,386,507 shares of the Issuer's Common Stock were outstanding.


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Table of Contents


Forward Looking Statements
4
   
PART I
 
Item 1. Business
4
Item 1A. Risk Factors
9
Item 1B. Unresolved Staff Comments
13
Item 2. Properties
13
Item 3. Legal Proceedings
13
Item 4. Submission of Matters to a Vote of Security Holders
13
   
PART II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder  Matters and Issuer Purchases of Equity Securities
13
Item 6. Selected Financial Data
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
25
Item 8. Consolidated Financial Statements and Supplementary Data
26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
52
Item 9A. Controls and Procedures
53
Item 9B. Other Information
53
   
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
54
Item 11. Executive Compensation
57
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
72
Item 13. Certain Relationships and Related Transactions
74
Item 14. Principal Accountant Fees and Services
75
   
PART IV
 
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
75
   
SIGNATURES
80
   
SCHEDULES
81
   
INDEX TO EXHIBITS
82

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Forward-Looking Statements
We believe that it is important to communicate our future expectations to our shareholders and to the public. This report contains forward-looking statements, including, in particular, statements about our future plans, objectives and expectations under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. When used in this Form 10-K and in future filings by ParkerVision, Inc., with the Securities and Exchange Commission, 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 that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Examples of such risks and uncertainties include 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 anticipated events or circumstances occurring after the date of such statements.

PART I

Item 1. Business
Description of Business

ParkerVision, Inc. (the “Company” or “we”) was incorporated under the laws of the state of Florida on August 22, 1989. We operate in the business of wireless technologies and products.
 
We are in the business of designing, developing and marketing our proprietary wireless radio frequency (“RF”) technologies for use in semiconductor circuits for wireless radio applications. Our immediate market focus is on securing licensing agreements for our Direct2Power™ or d2p™ RF transmit chain technology. Our target customers are top tier mobile handset manufacturers and their key semiconductor suppliers. We believe our proprietary wireless technologies embody significant industry advances that can be commercialized in the near term.

From late 2003 through June of 2005, we manufactured and sold branded wireless networking products that incorporated our proprietary technology through retail and internet retail distribution channels. All of our revenues from continuing operations to date were generated from these retail products. In June 2005, we exited our manufacturing and retail sales activities in pursuit of our longer-term business strategy of establishing relationships with original equipment manufacturers (“OEMs”) for the incorporation of our technology into their products. Our decision to exit the retail activities was precipitated by advances in our wireless technology resulting in increased interest from OEM prospects, specifically in the mobile handset market. We determined that the investment required to increase brand awareness, introduce new product offerings, and expand the distribution channel for retail products, would detract from our ability to capitalize on OEM opportunities.

Exiting the retail business resulted in charges to our 2005 second quarter operating results of approximately $4.7 million. During the second half of 2005, we sold our remaining finished product inventories, including those products reclaimed from retail and distribution channel partners, to a wholesaler. We also entered into a consignment arrangement for the liquidation of our remaining raw materials inventory and liquidated our manufacturing and prototype facility assets and other property and equipment utilized in retail business activities. As of December 31, 2005, we had substantially completed our retail exit activities.

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In parallel with our retail exit activities in the second half of 2005, we began demonstrating our d2p wireless technology to prospective OEM customers in the mobile handset industry using semi-integrated circuits. At the end of 2005, we completed our first d2p integrated circuit (“IC”) which allowed us to demonstrate the advantages of our technology and its manufacturability in silicon. Throughout 2006, we continued to further integrate our technology in silicon while cultivating potential customer relationships. Our sales-related activities in 2006 included prototype demonstrations of our increasingly integrated D2P platform, support of in-depth technical due-diligence by prospective customers, analysis of prospective customer product plans, delivery of initial proposals and terms, and, ultimately, negotiations of proposed business relationships. In addition, early in 2006, we expanded our target customer base to include not only the top tier mobile handset OEM providers but also their key component suppliers. In the second half of 2006, we also initiated a campaign targeted at the wireless network providers who are key influencers to the OEMs in the mobile handset industry. We are also exploring potential business arrangements with one or more target customers outside the mobile handset industry who may have applications for our technology that are in concert with our development efforts in the mobile handset space.

Our current business strategy is to become a provider of intellectual property through licensing arrangements which will enable others to design and manufacture ICs incorporating our proprietary wireless technology. Based on the current status of business negotiations, we believe our first licensing arrangements will be realized in the near term.

To date, we have generated no revenue from licensing of our wireless RF transmit technologies. Our ability to generate revenues sufficient to offset costs is subject to our ability to successfully market our intellectual property for design into widely deployed products that are manufactured by others. We believe our technology has substantial advantages over competing technologies, especially in the third generation, or 3G, mobile handset market and generations that are likely to evolve beyond 3G, such as 3.9G and 4G mobile handset standards and applications. Our unique technology processes the RF waveform in a more optimal manner than existing technologies, thereby allowing OEMs to create handsets that have extended battery life, more easily incorporate multiple air interface standards and frequencies in smaller form factors, and reduce manufacturing costs. Our technology provides such attractive benefits, in part, because its unique integrated circuit architecture enables efficient digital circuit processing, eliminating many of the limitations of legacy analog processing. In addition, our technology has proven to be attractive to the network providers as it can increase capacity, coverage and data throughput of their mobile networks .

Recent Developments

Sale of Equity Securities to Fund Continuing Operations

On February 23, 2007, we completed the sale of an aggregate of 992,441 shares of our common stock to a limited number of domestic institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represent 4.1% of our outstanding common stock on an after-issued basis, were sold at a price of $8.50 per share, for net proceeds of approximately $8.4 million. The net proceeds from this transaction will be used for general working capital purposes.

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We will register the Common Stock issued in the private offering for re-offer and re-sale by the investors. We have committed to file the registration statement within 45 days of closing and to cause the registration statement to become effective on or prior to the earlier of (i) the fifth trading day following the date that we are notified by the SEC that the registration statement will not be reviewed or is no longer subject to review, and (ii) 120 days after the closing date. If the Common Stock is not registered for resale within those time periods, we will pay liquidated damages in the amount of one percent of the amount invested for each 30-day period (pro rated) until the filing or effectiveness of the registration statement, up to a maximum of ten percent of the gross proceeds.

Technology and Products

Our wireless technologies, collectively referred to as Energy Signal Processing or ESP™, represent unique, proprietary methods for processing RF waveforms in wireless applications. The technology applies to the transmit (baseband data to an RF carrier signal) and receive (RF carrier signal to baseband data) functions of a radio transceiver. The transmit portion of the technology is called Direct2Power, or d2p, and enables the transformation of a digital baseband signal to an RF carrier waveform, at the desired power output level, in a single unified operation. The receiver portion of the technology is called Direct2Data™, or d2d™, and enables the direct conversion of an RF carrier to baseband data signal. We are currently focused solely on commercialization of our d2p technology solutions.

We have completed several engineering prototypes of our d2p-based ICs targeted at mobile handset applications. These ICs were produced using a Silicon Germanium (SiGe) process through a fabrication relationship with IBM Microelectronics (“IBM”). These ICs are utilized to verify that our technology can be highly integrated in silicon and to demonstrate the benefits of the technology to OEM target customers. The portion of the IC that embodies the core RF technology is not customer-specific and therefore has been highly integrated in prototype ICs. We anticipate that OEM customers will engage us to customize the implementation of the core technology based on their specific interface and product requirements. Our current prototypes support multi-band (meaning multiple frequencies) and multi-mode (meaning multiple cellular standards and corresponding modulation formats) functionality. Our ICs support multiple bands of cellular and PCS frequencies and support the current and emerging cellular standards including GSM/EDGE, CDMA, W-CDMA, and HSUPA. We are also able to demonstrate 802.16e WiMax standards using PCS frequencies with our current ICs.
 
Our d2d (receiver) technology was first introduced in the form of transceiver ICs for the wireless local area networking (“WLAN”) market in 2002. In 2003, we began marketing ICs to OEMs and original design manufacturers (“ODM”s) who manufacture and sell WLAN products or application modules that incorporate WLAN capabilities. We found that the unique nature of the technology and related design requirements, the features that OEMs were interested in for volume WLAN applications, and the lack of brand recognition in the marketplace hindered our marketing efforts. As a result, in 2003, we initiated a business strategy of developing our own d2d-based WLAN products for marketing to end-users. We believe this strategy would not only generate initial product revenue but would also provide a proof of concept to OEMs and ODMs of the underlying technology. In addition, we believed the development of finished products enabled better understanding of the manufacturing requirements, design interface needs and other requirements which allows refinement of designs in subsequent generations of ICs.

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In the fourth quarter of 2003, we introduced our first d2d-based WLAN end-user products for wireless Internet data networking applications. These products included a wireless local area networking card, designed for use with laptop computers, a wireless universal serial bus adaptor for use with desktop computers and a wireless four-port router for networking applications. All of our initial products were compliant with the 802.11b industry standard for WLAN communications. During 2004 and early 2005, we produced WLAN products for retail distribution and our product development efforts focused on expanding the retail offering to the 802.11g standard as well as to cordless telephones utilizing the d2d technology. In June 2005, we ceased production and development efforts for our WLAN end-user products and exited our retail business activities in order to focus exclusively on OEM opportunities, particularly with regard to our transmit technology implementation which we believe has broad adoption potential in the mobile handset market.

We anticipate that our receiver technology will also be ultimately adopted in the mobile handset market, however we estimate its adoption will lag behind the adoption of our transmit technology by at least twelve to eighteen months.

Marketing and Sales

Our marketing and sales activities are currently focused on top tier OEMs that design and/or manufacture mobile handsets, and the key semiconductor suppliers to those OEMs. We are engaged in discussions with companies that, based on industry data, collectively represent over 75% of the handset shipments worldwide. We are also exploring potential business arrangements with one or more target customers outside the mobile handset industry to the extent their applications for our technology are complimentary to our efforts in the mobile handset market. Our sales and sales support activities include prototype demonstrations of both semi-integrated and highly integrated circuits that showcase the benefits of the technology; support of detailed technology due-diligence discussions and testing; analysis of potential customer product roadmaps and integration alternatives; and negotiations of specific terms of potential business relationships.

We believe the sales cycle, from the initial customer meeting to the consummation of a business arrangement, is approximately 18-24 months. The length of the sales cycle is a result of many factors, including the unique nature of our technology; intense technology evaluation and due-diligence required based on the complex nature of radio frequency technology, in general, and the cellular specifications, in particular; our lack of tenure in the cellular industry; and the variety of licensing implementations and integration decisions that must be evaluated by the customer in order to assess the specific value proposition for their needs. We believe our initial design wins will occur in the near term and furthermore, we believe our sales cycle with additional customers will shorten significantly following initial adoption. Future sales cycles may be influenced by the terms of our initial customers and our ability to expand internal resources to support multiple customers.

Prior to June 2005, we promoted and sold our WLAN end-user products in the United States and Canada through traditional retailers, online retailers, value-added resellers (“VARs”) and direct through our own online store. In June 2005, we exited our retail business activities to pursue OEM opportunities. The retail exit included a reduction in retail sales and marketing staff and cessation of all retail marketing activities. We continued to work with our retail and distribution partners throughout the balance of 2005 to facilitate returns of unsold product in the channel. We sold our remaining retail product inventory to a wholesaler and anticipate no further revenue from retail product sales.
 
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Competition

We operate in a highly competitive industry against companies with substantially greater financial, technical, and sales and marketing resources. Our transmit technology, which is currently being marketed to mobile handset OEMs, faces competition from incumbent providers of transmitters and power amplifiers including companies such as RF Microdevices, Anadigics, Skyworks, Texas Instruments, Freescale, Philips, and others. Each of our competitors, however, also has the potential of becoming a licensee of our technology. We also compete against RF engineering programs within the research and development organizations of our target customers. To date, we are unaware of any competing or emerging RF technologies that provide all the simultaneous benefits that our technology enables.

We believe we can gain OEM adoption, and therefore compete, based on the performance and cost advantages enabled by our unique circuit architecture, as supported by a solid and defensible intellectual property portfolio. Our intellectual property offering is capable of being compliant with mobile standards-based 3G requirements and can accept the same baseband data input as traditional or future offerings. In addition, we believe the improved power efficiencies enabled by our technology provide a solution to an existing problem in applications for 3G standards and beyond that the OEMs and wireless carriers alike are seeking to solve.

Production and Supply

Our current business strategy is focused on licensing our intellectual property, not supply of ICs. As a result, the production capacity risk shifts to the OEM and its key semiconductor suppliers. We currently have a fabrication relationship with IBM for the production of our d2p-based prototype ICs on a SiGe process. We believe IBM has sufficient capacity to meet our foreseeable needs. In addition, our ICs can be produced using different materials and processes, if necessary, to satisfy capacity requirements and/or customer preferences.
 
Discontinued Operations

In May 2004, we completed the sale of certain designated assets of our video division to Thomson Broadcast & Media Solutions, Inc. and Thomson Licensing, SA (collectively referred to as “Thomson”). The assets sold included the PVTV and Cameraman products, services, patents, patent applications, trademarks, tradenames and other intellectual property, inventory, specified design, development and manufacturing equipment, and obligations under outstanding contracts for products and services and other assets.

The sales price of the assets was approximately $13.4 million. We recognized a gain on the sale of discontinued operations in 2004 of approximately $11.2 million which is net of losses on the disposal of remaining assets related to the video operations of approximately $0.6 million. We agreed not to compete with the business of the video division for five years after the closing date. We also agreed not to seek legal recourse against Thomson in respect of our intellectual property that was transferred or should have been transferred if used in connection with the video operations. Additionally, we indemnified Thomson against intellectual property claims for an unlimited period of time, without any minimum threshold, and with a separate maximum of $5,000,000. The operations of our 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 “Gain from discontinued operations” in the accompanying consolidated statement of operations.

8

 
Patents and Trademarks

We consider our intellectual property, including patents, patent applications and trademarks, to be significant to our competitive positioning. We have a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries where we believe filing for such protection is appropriate to establish and maintain our proprietary rights in our technology and products. As of December 31, 2006, we have obtained 44 U.S. and 52 foreign patents related to our ESP technologies and have 94 patent applications pending in the United States and other countries. In addition, in February 2007, we were granted our first United States patent specifically related to our d2p transmit technology. We estimate the economic lives of our patents to be fifteen to twenty years.

Research and Development

For the years ended December 31, 2006, 2005 and 2004, we spent approximately $9.5 million, $10.3 million, and $11.4 million, respectively, on research and development for continuing operations. Our research and development efforts have been devoted to the development of RF technologies and related products.


Employees

As of December 31, 2006, we had 51 full-time employees, of which 28 are employed in engineering research and development and product operations, 10 in sales and marketing, and 13 in executive management, finance and administration. Our employees are not represented by a labor union. We consider our employee relations satisfactory.

Available Information and Access to Reports

We file our annual report on Form 10-K and quarterly reports on Forms 10-Q, including amendments, as well as our proxy and other reports electronically with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site ( http://www.sec.gov ) where these reports may be obtained at no charge. Copies of any materials filed with the SEC may also be obtained from the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Copies of these reports may also be obtained via the Company’s website (http://www.parkervision.com) via the link “SEC filings”. This provides a direct link to our reports on the SEC Internet site. We will provide copies of this annual report on Form 10-K and the quarterly reports on Forms 10-Q, including amendments, filed during the current fiscal year upon written request to Investor Relations, 7915 Baymeadows Way, Suite 400, Jacksonville, Florida, 32256. These reports will be provided at no charge. In addition, exhibits may be obtained at a cost of $.25 per page plus $5.00 postage and handling.

Item 1A. Risk Factors

In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements.

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We have had a history of losses which may ultimately compromise our ability to implement our business plan and continue in operations.
We have had losses in each year since our inception in 1989, and continue to have an accumulated deficit which, at December 31, 2006, was $149.4 million. The net loss for 2006 was $15.8 million. To date, our technologies and products have not produced revenues sufficient to cover operating, research and development and overhead costs. We also will continue to make expenditures on marketing, research and development, pursuit of patent protection for our intellectual property and operational costs for fulfillment of any contracts that we achieve for the sale of our products or technologies. We expect that our revenues in the near term will not bring the company to profitability. If we are not able to generate sufficient revenues or we have insufficient capital resources, we will not be able to implement our business plan and investors will suffer a loss in their investment. This may result in a change in our business strategies.
 
We expect to need additional capital in the future, which if we are unable to raise will result in our not being able to implement our business plan as currently formulated.
Because we have had net losses and, to date, have not generated positive cash flow from operations, we have funded our operating losses from the sale of equity securities from time to time and the sale of our video division in 2004. We anticipate that our business plan will continue to require significant expenditures for research and development, patent protection, sales and marketing and general operations. Our current capital resources, including cash and short-term investments of $13.2 million and net proceeds from our February 2007 private placement transaction of approximately $8.4 million, are expected to sustain operations through the first quarter of 2008, if not longer. 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 us. The sale of equity securities will result in dilution to the current stockholders’ ownership. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from the sale of our products, additional funding or reducing expenses or a combination of the foregoing. The failure to generate sufficient revenues, raise capital or reduce expenses could have a material adverse effect on our ability to achieve our long-term business objectives.

Our industry is subject to rapid technological changes which if we are unable to match or surpass, will result in a loss of competitive advantage and market opportunity.
Because of the rapid technological development that regularly occurs in the microelectronics industry, we must continually devote substantial resources to developing and improving our technology and introducing new product offerings. For example, in fiscal years 2005 and 2006, we spent approximately $10.3 and $9.5 million, respectively, on research and development, and we expect to continue to spend a significant amount in this area in the future. These efforts and expenditures are necessary to establish and increase market share and, ultimately, to grow revenues. If another company offers better products or our product development lags, a competitive position or market window opportunity may be lost, and therefore our revenues or revenue potential may be adversely affected.

If our products are not commercially accepted, our developmental investment will be lost and our future business continuation will be impaired.
There can be no assurance that our research and development will produce commercially viable technologies and products. If existing or new technologies and products are not commercially accepted, the funds expended will not be recoverable, and our competitive and financial position will be adversely affected. In addition, perception of our business prospects will be impaired with an adverse impact on our ability to do business and to attract capital and employees.

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If our patents and intellectual property do not provide us with the anticipated market protections and competitive position, our business and prospects will be impaired.
We rely on our intellectual property, including patents and patent applications, to provide competitive advantage and protect us from theft of our intellectual property. We believe that many of our patents are for entirely new technologies. If the patents are not issued or issued patents are later shown not to be as broad as currently believed, or are otherwise challenged such that some or all of the protection is lost, we will suffer adverse effects from the loss of competitive advantage and our ability to offer unique products and technologies. In addition, there would be an adverse impact on our financial condition and business prospects.

If we cannot demonstrate that our technologies and products can compete in the marketplace and are better than current competitive solutions, then we will not be able to generate the sales we need to continue our business and our prospects will be impaired.
We expect to face competition from chip suppliers such as RF MicroDevices, Anadigics, Skyworks, Texas Instruments and Philips, among others. Our technology may also face competition from other emerging approaches or new technological advances which are under development and have not yet emerged. If our technologies and products are not established in the market place as improvements over current, traditional chip solutions in wireless communications, our business prospects and financial condition will be adversely affected.

We believe that we will rely, in large part, on key business and sales relationships for the successful commercialization of our products, which if not developed or maintained, will have an adverse impact on achieving market awareness and acceptance and will result in a loss of business opportunity.
To achieve a wide market awareness and acceptance of our products, as part of our business strategy, we will attempt to enter into a variety of business relationships with other companies which will incorporate our intellectual property into their products and/or market products based on our technologies. Our successful commercialization of our products will depend in part on our ability to meet obligations under contracts with respect to the products and related development requirements. The failure of the business relationships will limit the commercialization of our products which will have an adverse impact on our business development and our ability to generate revenues and recover development expenses.

We are highly dependent on Mr. Jeffrey Parker as our chief executive officer whose services, if lost, would have an adverse impact on our leadership, industry perception, and investor perception about our future.
Because of Mr. Parker’s position in the company and the respect he has garnered in both the industry in which we operate and the investment community, the loss of the services of Mr. Parker might be seen as an impediment to the execution of our business plan. If Mr. Parker were no longer available to the company, investors may experience an adverse impact on their investment. We do not currently have an employment agreement with Mr. Parker. We maintain key-employee life insurance for our benefit on Mr. Parker.

If we are unable to attract highly skilled employees we will not be able to execute our research and development plans or provide the highly technical services that our products require.
Our business is very specialized, and therefore it is dependent on having skilled and specialized employees to conduct our research and development activities, operations, marketing and support. The inability to obtain these kinds of persons will have an adverse impact on our business development because persons will not obtain the information or services expected in the markets and may prevent us from successfully implementing our current business plans.

11

The outstanding options and warrants may affect the market price and liquidity of the common stock.
At December 31, 2006, we had 23,387,566 shares of common stock outstanding and had 6,752,273 exercisable options and warrants for the purchase of shares of common stock, assuming no terminations or forfeitures of such options and warrants. On December 31, 2007 and 2008, there will be 7,092,118 and 7,436,178 respectively, currently outstanding and exercisable options and warrants (assuming no new grants, terminations or forfeitures). All of the underlying common stock of these securities is or will be registered for sale to the holder or for public resale by the holder. The amount of common stock available for the sales may have an adverse impact on our ability to raise capital and may affect the price and liquidity of the common stock in the public market. In addition, the issuance of these shares of common stock will have a dilutive effect on current stockholders’ ownership.

Provisions in the certificate of incorporation and by-laws could have effects that conflict with the interest of stockholders.
Some provisions in our certificate of incorporation and by-laws could make it more difficult for a third party to acquire control. For example, the board of directors has the ability to issue preferred stock without stockholder approval, and there are pre-notification provisions for director nominations and submissions of proposals from stockholders to a vote by all the stockholders under the by-laws. Florida law also has anti-takeover provisions in its corporate statute.

We have a shareholder protection rights plan that may delay or discourage someone from making an offer to purchase the company without prior consultation with the board of directors and management which may conflict with the interests of some of the stockholders.
On November 17, 2005, the board of directors adopted a shareholder protection rights plan which called for the issuance, on November 29, 2005, as a dividend, rights to acquire fractional shares of preferred stock. The rights are attached to the shares of common stock and transfer with them. In the future the rights may become exchangeable for shares of preferred stock with various provisions that may discourage a takeover bid. Additionally, the rights have what are known as “flip-in” and “flip-over” provisions that could make any acquisition of the company more costly. The principal objective of the plan is to cause someone interested in acquiring the company to negotiate with the board of directors rather than launch an unsolicited bid. This plan may limit, prevent, or discourage a takeover offer that some stockholders may find more advantageous than a negotiated transaction. A negotiated transaction may not be in the best interests of the stockholders.
 
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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties
 
Our headquarters are located in a 14,000 square foot leased facility in Jacksonville, Florida. We have an additional leased facility in Lake Mary, Florida primarily for engineering design activities. We believe our properties are in good condition and suitable for the conduct of our business.

Prior to June 2006, our headquarters and previous manufacturing operations were in a leased facility in Jacksonville, Florida, pursuant to a lease agreement with Jeffrey Parker, our chairman and chief executive officer, and Barbara Parker, a related party. Due to the cessation of our manufacturing activities in 2005, we relocated to a smaller facility in June 2006. We did not incur any losses related to early termination of our lease for that facility.

Refer to “Lease Commitments” in Note 11 to the Consolidated Financial Statements included in Item 8 for information regarding our outstanding lease obligations.

Item 3. Legal Proceedings

We are subject to legal proceedings and claims arising in the ordinary course of business. Based upon the advice of outside legal counsel, we believe that the final disposition of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders

None.


PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded under the symbol PRKR   on the Nasdaq Global Market ("Nasdaq"), which is the principal market for the common stock. Listed below is the range of the high and low bid prices of the common stock for the last three fiscal years, as reported by Nasdaq. The amounts represent inter-dealer quotations without adjustment for retail markups, markdowns or commissions and do not necessarily represent the prices of actual transactions.

   
2006
 
2005
 
2004
   
High
 
Low
 
High
 
Low
 
High
 
Low
1 st Quarter
 
$10.91
 
$7.61
 
$13.27
 
$6.61
 
$10.09
 
$5.45
2 nd Quarter
 
12.00
 
9.02
 
8.50
 
3.70
 
7.03
 
4.00
3 rd Quarter
 
9.63
 
5.30
 
10.24
 
4.72
 
5.89
 
3.45
4 th Quarter
 
11.98
 
6.53
 
9.50
 
4.85
 
9.20
 
3.89

Holders

As of February 28, 2007, there were 171 holders of record. We believe there are approximately 2600 beneficial holders of our common stock.
 
13

 
Dividends
 
To date, we have not paid any dividends on our common stock. The payment of dividends in the future is at the discretion of the board of directors and will depend upon our ability to generate earnings, our capital requirements and financial condition, and other relevant factors. We do not intend to declare any dividends in the foreseeable future, but instead intend to retain all earnings, if any, for use in the business.

Sales of Unregistered Securities
 
 
 
Date of
sale
 
 
 
 
Title of security
 
 
 
Number
sold
 
Consideration received and description of underwriting or
other discounts to market price afforded to purchasers
 
Exemption
from registration claimed
 
If option, warrant or
convertible security, terms
of exercise or
conversion
10/2/06
Options to purchase common stock granted to an employee pursuant to the 2000 Plan
2,680
Option granted - no consideration received by Company until exercised
4(2)
Exercisable for seven years from the grant date at an exercise price of $6.80 per share.
10/12/06
Options to purchase common stock granted to officers and management employees pursuant to the 2000 Plan
203,000
Options granted - no
consideration received by
Company until exercise
4(2)
Expire seven years from date granted, options vest over three years at an exercise price of $8.81
10/13/06 to 10/17/06
Options to purchase common stock granted to employees pursuant to the 2000 Plan
60,900
Options granted - no
consideration received by
Company until exercise
4(2)
Expire seven years from date granted, options vest over three years at exercise prices ranging from $8.68 to $8.73
           
11/06 - 12/06
Options to purchase common stock granted to employees pursuant to the 2000 Plan
74,550
Options granted - no
consideration received by
Company until exercise
4(2)
Expire seven years from date granted, options vest over three years at exercise prices of $9.88 to $10.17
           
12/15/06
Options to purchase common stock granted to employee pursuant to the 2000 Plan
1,000
Options granted - no
consideration received by
Company until exercise
4(2)
Exercisable for seven years from the grant date at an exercise price of $9.88 per share.
           

Issuer Repurchase of Equity Securities.

None.
 
14

 
Performance Graph
 
The following graph shows a five-year comparison of cumulative total shareholder returns for our company, the Nasdaq U.S. Stock Market Index, the Nasdaq Electronic Components Index and Nasdaq Telecommunications Index for the five years ending December 31, 2006. The total shareholder returns assumes the investment on December 31, 2001 of $100 in our common stock, the Nasdaq U.S. Stock Market Index, the Nasdaq Electronic Components Index, and Nasdaq Telecommunications Index at the beginning of the period, with immediate reinvestment of all dividends.
 
 

 
15

 
Item 6. Selected Financial Data

The following table sets forth our consolidated financial data as of the dates and for the periods indicated. The data has been derived from our audited consolidated financial statements. The selected financial data should be read in conjunction with our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The selected financial data for the statements of operations for all prior years has been restated to reflect the effects of discontinued operations.
 
   
For the years ended December 31,
 
 
 
2006
 
2005
 
2004
 
2003
 
2002
 
(in thousands, except per share amounts)
                     
Consolidated Statement of Operations Data:
                     
Revenues, net
 
$
0
 
$
996
 
$
441
 
$
23
 
$
0
 
Gross margin
   
0
   
(2,041
)
 
(2,854
)
 
(7
)
 
0
 
Operating expenses
   
16,866
   
21,362
   
19,951
   
19,104
   
16,772
 
Interest and other income
   
1,051
   
304
   
217
   
476
   
905
 
Loss from continuing o perations
   
(15,815
)
 
(23,099
)
 
(22,588
)
 
(18,635
)
 
(15,867
)
Gain (loss) from discontinued operations
   
0
   
0
   
7,773
   
(3,380
)
 
(1,405
)
Net loss
   
(15,815
)
 
(23,099
)
 
(14,815
)
 
(22,015
)
 
(17,272
)
Basic and diluted net loss per common share
Continuing operations
   
(0.68
)
 
(1.14
)
 
(1.25
)
 
(1.21
)
 
(1.14
)
Discontinued operations
   
n/a
   
n/a
   
0.43
   
(0.22
)
 
(0.10
)
Total basic and diluted net loss per common share
   
(0.68
)
 
(1.14
)
 
(0.82
)
 
(1.43
)
 
(1.24
)
                                 
Consolidated Balance Sheet Data:
                               
Total assets
 
$
26,675
 
$
23,832
 
$
28,081
 
$
42,483
 
$
37,745
 
Shareholders’ equity
   
25,183
   
22,400
   
24,758
   
39,399
   
34,047
 
Working capital
   
13,313
   
10,833
   
10,471
   
23,225
   
18,992
 

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 marketing our proprietary wireless RF technologies for use in semiconductor circuits for wireless radio applications. Our immediate market focus is on securing licensing agreements for our d2p RF transmit chain technology. Our primary target customers are top tier mobile handset manufacturers and their key semiconductor suppliers. We believe our proprietary wireless technologies embody significant industry advances that can be commercialized in the near term.
16

 
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 have not yet generated revenues sufficient to offset our operating expenses and have used the proceeds from the sale of equity securities to fund our operations.

In June 2005, we exited our retail business activities which represented our sole source of revenue from continuing operations. We expect to consummate initial license agreements in early 2007 for the design of our technology into mobile handsets. We intend to continue to use our working capital to support future marketing, sales, research and development and general operations. No assurance can be given that such expenditures will result in revenues, new products, or technological advances or that we have adequate capital to complete our products or gain market acceptance before requiring additional capital.

Critical Accounting Policies

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

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The more significant estimates made by management include the volatility, risk-free interest rate, forfeiture rate and estimate lives of share-based awards used in the calculation of the fair market value of share-based compensation, the assessment of impairment of assets and amortization period for intangible and long-lived assets, and the valuation allowance for deferred taxes. Actual results could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.

Accounting for Stock Based Compensation
Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” (“FAS 123R”) which establishes accounting for equity instruments exchanged for employee services. Under the provisions of FAS 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity grant). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to FAS 123R. We have applied the provisions of SAB 107 in our adoption of FAS 123R.

Prior to January 1, 2006, we accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. We also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”. We elected to adopt the modified prospective transition method as provided by FAS 123R and, accordingly, financial statement amounts for the prior periods have not been retroactively adjusted to reflect the fair value method of expensing share-based compensation. Under the modified prospective method, share-based expense recognized after adoption includes: (a) share-based expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as amended by SFAS 148 and (b) share-based expense for all awards granted or modified subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FAS 123R. Further, as required under FAS123R, we estimate forfeitures for options granted which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock-based compensation expense.

17

In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, (“FSP FAS 123R-3”). FSP FAS 123R-3 provides a practical exception when a company transitions to the accounting requirements in FAS123R. FAS123R requires a company to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to adopting FAS123R (termed the “APIC Pool”), assuming the company had been following the recognition provisions prescribed by SFAS No. 123. We have elected to use the shortcut method under FAP FAS 123R-3 to calculate our APIC Pool.

Impairment of Long Lived Assets
Property and equipment, patents, copyrights and other intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to twenty years. Management evaluates the recoverability of long-lived assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists.

Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure related to the use of fair value measures in financial statements. SFAS 157 does not expand the use of fair value measures in financial statements, but standardizes its definition and guidance in GAAP. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We will adopt the provisions of SFAS 157 on January 1, 2008. We have evaluated SFAS 157 and do not anticipate that it will have an impact on our financial statements when adopted.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statement misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of (1) the error quantified as the amount by which the current year income was misstated (“rollover method”) or (2) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (“iron curtain method”). The guidance provided by SAB 108 requires both methods to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first filing of prior year financial statements after adoption. The cumulative effect of the correction would be reflected in the opening balance sheet with appropriate disclosure of the nature and amount of each individual error corrected in the cumulative adjustment, as well as a disclosure of the cause of the error and that the error had been deemed to be immaterial in the past. SAB 108 is effective for our fiscal year ended December 31, 2006 . We have evaluated SAB 108 and determined that it does not have an impact on our financial statements.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides a comprehensive model for how a company should recognize, measure, present and disclose uncertain tax positions that a company has taken or expects to take on a tax return. FIN 48 becomes effective for annual periods beginning after December 15, 2006. We will adopt the provisions of FIN 48 effective January 1, 2007. We are in the process of evaluating the impact of FIN 48 and its impact on our financial statements when adopted.

18


Results of Operations for Each of the Years Ended December 31, 2006, 2005 and 2004

Exit from Retail Business Activities

In June 2005, we announced our plan to exit our retail business activities and continue our pursuit of an OEM business strategy for commercialization of our proprietary wireless technologies. Our decision to exit the retail activities was precipitated by advances in our wireless technology that generated increased interest from OEM prospects, especially in the mobile handset market. Management determined that the investment required to increase brand awareness, expand product offerings, and expand the distribution channel for retail products would detract from our ability to capitalize on OEM opportunities.

Exiting the retail business resulted in charges to our second quarter 2005 operating results totaling approximately $4.7 million, primarily related to employee severance benefits and the reduction of assets to their expected recovery value. During the second half of 2005, we reclaimed unsold product inventory from the distribution channel, liquidated our raw materials and finished product inventories through wholesale channels and liquidated our manufacturing and prototype facility assets and other property and equipment utilized in the retail business activities. We substantially completed our retail exit activities by the end of 2005.

Revenues

We had no revenues for the year ended December 31, 2006. Revenues for the years ended December 31, 2005 and 2004 included retail product revenue of $995,991 and $190,811, respectively. In addition, revenues for the year ended December 31, 2004 included royalty revenue of $250,000 from a one-time previously deferred royalty payment upon termination of a licensing agreement.

Prior period product revenues represent sales of wireless consumer product through retail channels. The increase in product revenue of $805,180 from 2004 to 2005 was primarily a result of the expansion of our retail distribution channel starting in the third quarter of 2004. At the time of our exit from retail business activities we had products in approximately 300 retail storefronts. Although we exited our retail business activities in June 2005, product revenues from the retail channel continued through the second half of 2005 as retailers continued to sell through discontinued products and we recognized previously deferred revenue based on expiration of retailers rights to return products. At December 31, 2004, we had deferred revenue from product sales in the distribution channel of $407,403.

Revenues for the period ended December 31, 2005 and 2004 were net of an allowance (recovery) for sales returns of $(80,333) and $97,958, respectively. In addition to the reserve for sales returns, gross revenue was reduced for price protection programs, customer rebates and cooperative marketing costs deemed to be sales incentives under Emerging Issues Task Force, (EITF) Issue 01-19, to derive net revenue. For the years ended December 31, 2005 and 2004, net revenue was reduced for cooperative marketing costs in the amount of $29,932 and $233,201, respectively.

Our generation of future revenues is dependent upon our ability to successfully consummate relationships with OEMs for integration of our technology into widely deployed products that are manufactured by others. To date, we do not have any OEM contracts for our technology. We anticipate consummating initial licensing agreements for our technology in the near term. We expect that revenues from these agreements will include up-front technology access fees, non-recurring engineering fees for design support services, and ultimately royalty revenues on a per unit sold basis. Based on the design cycle in the mobile handset market, we anticipate that royalty revenues will not be recognized within the first twelve months following the initial customer agreement. As such, we do not anticipate that revenues in 2007 will be sufficient to offset our operating expenses.

19


Gross Margin

The gross margins for products and royalties for the years ended December 31, 2005 and 2004 were as follows:

   
2005
 
2004
 
           
Products
 
$
(2,040,823
)
$
(3,103,900
)
Royalties
   
0
   
250,000
 
               
Total
 
$
(2,040,823
)
$
(2,853,900
)

Our product margin in 2005 reflects a write down of inventory to net realizable value in the amount of $2,250,586. This write down was a result of our exit from retail activities in the second quarter of 2005, resulting in a mark down of remaining product inventory to estimated wholesale values.

Our product margin in 2004 reflects a write down of inventory to net realizable value in the amount of $2,768,854. This write down was triggered by a significant price decrease on our wireless networking product line in the fourth quarter of 2004, along with the high carrying costs of initial production inventory.

The margin recognized on royalty revenues in 2004 was due to the recognition of a one-time, previously deferred prepaid royalty in connection with the termination of a licensing agreement.

Research and Development Expenses

Our research and development expenses decreased by $763,111 or 7%, from $10,284,305 in 2005 to $9,521,194 in 2006. Our research and development expenses decreased by $1,138,396 or 10%, from $11,422,701 in 2004 to $10,284,305 in 2005.
The decrease in research and development expenses from 2005 to 2006 was primarily due to cost reductions following the June 2005 retail exit including a reduction in retail product development personnel and related costs of approximately $1,800,000 and a reduction in depreciation and amortization of retail related assets of approximately $900,000. These decreases were offset by increases in expenses for the use of outside design firms of approximately $1,000,000, increases in employee stock compensation expense due the adoption of “FAS123R” of approximately $700,000, and increases in prototype costs of approximately $220,000 stemming from increases in the number of prototype chip production runs.

The decrease in research and development expenses from 2004 to 2005 was primarily due to the reduction of personnel and third party development fees of approximately $750,000, a reduction in depreciation and amortization expense of approximately $570,000, and a reduction in outside prototype costs, including foundry costs, of approximately $320,000. These reductions were somewhat offset by increases in maintenance costs for software development tools of approximately $200,000, increases in professional fees related to patents of approximately $160,000, and an increase in overhead and other costs related to utilizing our manufacturing facility in the first half of 2005 for prototypes of approximately $230,000. The decreases in personnel, third party development fees, amortization expense and prototype expenses resulted from our exit from retail activities in June 2005. The decreases in foundry costs are, in part, due to utilization of shared foundry services as opposed to dedicated foundry runs which cost three to four times more per run.

20

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 the percentage of revenues invested in our research and development programs may vary from period to period, we are committed to continue investing in our technology development. We anticipate that we will use a substantial portion of our working capital for research and development activities in 2007.

We anticipate that the consummation of initial customer relationships in 2007 may result in increased development expenses; however, we believe that some or all of such increases may be offset by non-recurring engineering fees paid to us by customers.

Marketing and Selling Expenses

Marketing and selling expenses decreased by $1,023,360 or 33%, from $3,141,187 in 2005 to $2,117,827 in 2006. Marketing and selling expenses increased by $656,998 or 26%, from $2,484,189 in 2004 to $3,141,187 in 2005.

The decrease in marketing and selling expenses from 2005 to 2006 was primarily due to cost reductions in personnel and related costs of approximately $670,000 and reduced retail promotional costs of approximately $540,000 following the June 2005 exit from retail. These costs reductions were partially offset by an increase in employee stock compensation expense of approximately $320,000 following the adoption of “FAS123R.”

The increase in marketing and selling expenses from 2004 to 2005 was primarily due to an increase of approximately $890,000 in payroll and related costs for increases in sales and marketing personnel, offset by a decrease of approximately $350,000 in costs related to marketing promotional activities. The increase in payroll and related costs was due to increases in sales and marketing personnel late in 2004 and early in 2005 primarily related to the retail business, as well as the severance costs for retail related employees upon the exit from retail activities in June 2005. The decrease in overall promotional costs from 2004 to 2005 was due to market launch expenses incurred in the second half of 2004 upon expansion of the retail channel, as well as the cessation of retail marketing activities in June 2005.

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.

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 decreased by $805,144 or 13%, from $6,037,796 in 2005 to $5,232,652 in 2006. Our general and administrative expenses decreased by $6,665, or less than 1%, from $6,044,461 in 2004 to $6,037,796 in 2005.

21

The reduction in general and administrative costs from 2005 to 2006 is due to a reduction in personnel costs of approximately $470,000 stemming from staff reductions as well as the movement of certain senior management personnel to different areas of supervision. We had a reduction in bad debt expense of approximately $140,000 following the exit from retail, a reduction in share-based consulting fees of approximately $680,000, and a reduction in professional fees of approximately $310,000 from both legal and accounting fees. These reductions were partially offset by increases in employee and director stock compensation expense of approximately $860,000 following the adoption of “FAS123R.”

From 2004 to 2005, the decrease in general and administrative expenses is due to a decrease in payroll and related costs of approximately $320,000 and decreases in corporate insurance costs of approximately $200,000, offset by increases in board expenses and outside professional fees of approximately $360,000 and increases in bad debt expenses of approximately $120,000.

Impairment Loss and Loss on Disposal of Equipment

For 2006, we recognized a gain of $5,191 on the disposal of assets.

For 2005, we recognized impairment charges on certain long-lived assets related to the exit of our retail activities. These charges include impairment of prepaid license fees of approximately $662,000, impairment of other intangible assets of approximately $584,000 and impairment of fixed assets, primarily the manufacturing and prototype facility assets, of approximately $626,000. Additionally, an aggregate loss of $27,000 was recognized on the disposal of equipment in the normal course of business.
 
For 2004, there were no impairment charges or losses on disposal of equipment.

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 was $1,050,824, $303,729, and $217,382, for the years ended December 31, 2006, 2005, and 2004, respectively.


The increase of $747,095 from 2005 to 2006 is primarily due to higher interest rates and higher average cash balances in 2006.

The increase of approximately $86,347 from 2004 to 2005 was primarily due to an increase in interest earned from the proceeds of the private placement in the first quarter of 2005.

Discontinued Operations

On May 14, 2004, we completed the sale of certain designated assets of our video division to Thomson Broadcast & Media Solutions, Inc. and Thomson Licensing, SA (collectively referred to as “Thomson”). The prior years’ operating activities for the video business unit have been reclassified to “Gain from discontinued operations” in the accompanying Statements of Operations.
 
22

 
Net gain from discontinued operations for the year ended December 31, 2004 includes the following components:
 
   
2004
 
Net revenues
 
$
1,507,955
 
Cost of goods sold and operating expenses
   
4,955,098
 
(Loss) from operations
   
(3,447,143
)
Gain on sale of assets
   
11,220,469
 
Gain from discontinued operations
 
$
7,773,326
 

Loss and Loss per Common Share

Our net loss decreased from $23,099,448 or $1.14 per common share in 2005 to $15,815,658 or $0.68 per common share in 2006, representing a net loss decrease of $7,283,790 or $0.46 per common share. Our net loss increased from $14,814,543 or $0.82 per common share in 2004 to $23,099,448 or $1.14 per share, representing a net loss increase of $8,284,905 or $0.32 per common share. The results of operations are as follows:

   
2006
 
2005
 
2004
 
Loss from continuing o perations
 
$
(15,815,658
)
$
(23,099,448
)
$
(22,587,869
)
Gain from discontinued o perations
   
0
   
0
   
7,773,326
 
Net loss
 
$
(15,815,658
)
$
(23,099,448
)
$
(14,814,543
)

The decrease in net loss from 2005 to 2006 is primarily due to reduced operating expenses as a result of our exit from retail business activities in June 2005, as well as one-time charges related to impairment of inventory and other retail-related assets recognized in June 2005.

The increase in net loss from 2004 to 2005 is primarily due to the 2004 net gain on the sale of the video business unit assets of $7.8 million and impairment charges of $1.9 million related to our exit from its retail business activities in June 2005, offset somewhat by inventory impairment charges in 2004 that exceeded those incurred in 2005.

Liquidity and Capital Resources

At December 31, 2006, we had working capital of approximately $13,300,000 including approximately $13,200,000 in cash and cash equivalents. We used cash in operating activities of approximately $11,445,000, $15,667,000, and $21,809,000 for the years ended December 31, 2006, 2005, and 2004, respectively. Cash used in operating activities includes cash used in discontinued operations of $2,638,000 for the year ended December 31, 2004.

The decrease in cash used for operating activities from 2005 to 2006 was approximately $4,222,000 due to reduced operating costs following the retail exit in June 2005.

The decrease in cash used for operating activities from 2004 to 2005 was approximately $6,142,000, including a decrease of approximately $2,638,000 in cash used for discontinued operations. This decrease in cash used for continuing operations is due to a decrease in cash used for inventory component purchases in 2005 due to our cessation of product manufacturing as part of our exit from retail business activities. The decrease in cash used by discontinued operations is due to the sale of the video division in May 2004 (see Note 15 to the consolidated financial statements).

23

We (used) generated cash from investing activities of approximately $(2,090,000), $(1,037,000), and $10,776,000, for the years ended December 31, 2006, 2005, and 2004, respectively. For the years ended December 31, 2005 and 2004, cash (used) generated from investing activities includes cash generated from discontinued operations of approximately $1,035,000 and $12,060,000, respectively.

The cash used for investing activities in 2006 was for the payment of patent costs, equipment purchases, and leasehold improvements to our new facility. The cash used for investing activities in 2005 was for the payment of patents costs and purchases of equipment, offset somewhat by the proceeds from the maturity of investments and collection of purchase price receivable from Thomson. The cash generated from investing activities in 2004 was primarily from the proceeds of the sale of the video business unit assets and maturity of investments, offset somewhat by payment for patent costs and other intangible assets and purchases of equipment.

We incurred approximately $1,334,000, $1,607,000, and $1,953,000 in connection with patent costs and other intangible assets related to our technology in 2006, 2005, and 2004, respectively, including approximately $90,000 for patents related to discontinued operations in 2004. We incurred approximately $1,088,000, $744,000, and $996,000, for capital expenditures in 2006, 2005, and 2004, respectively, including approximately $5,000 for capital expenditures related to discontinued operations in 2004. These capital expenditures primarily represent the purchase of certain research and development software and test equipment, prototype equipment, and computer and office equipment to support additional personnel. In addition, in 2006, capital expenditures included leasehold improvements to our new facility. At December 31, 2006, we were not subject to any significant commitments to make additional capital expenditures.

We generated cash from financing activities of approximately $16,487,000 and $20,543,000 for the years ended December 31, 2006 and 2005, respectively. The cash generated from financing activities represents proceeds from the issuance of common stock in 2006 and 2005 to institutional and other investors in private placement transactions exempt from registration under the Securities Act of 1933 and the exercise of stock options. We generated no cash from financing activities for the year ended December 31, 2004.

Our future business plans call for continued investment in sales, marketing and product development for our wireless technologies and products. Our ability to generate revenues will largely depend upon the rate at which we are able to secure OEM adoption of our technology and products. The expected revenues for 2007 will not be sufficient to cover our operational expenses for 2007. The expected continued losses and use of cash will continue to be funded from available working capital.

On February 23, 2007, we completed the sale of 992,441 shares of common stock in a private placement transaction for net proceeds of approximately $8.4 million. We plan to use these proceeds, together with the $13.2 million in cash and cash equivalents at December 31, 2006, to fund our future business plans. We believe that our current capital resources together with the proceeds of the February 2007 equity financing will be sufficient to support our liquidity requirements at least through the first quarter of 2008. The long-term continuation of our business plans is dependent upon generation of sufficient revenues from our products to offset expenses. In the event that we do not generate sufficient revenues, we will be required to obtain additional funding through public or private financing and/or reduce certain discretionary spending. Management believes certain operating costs could be reduced if working capital decreases significantly and additional funding is not available. In addition, we currently have no outstanding long-term debt obligations. Failure to generate sufficient revenues, raise additional capital and/or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended long-term business objectives.

24


Off-Balance Sheet Transactions, Arrangements and Other Relationships; Contractual Obligations

As of December 31, 2006, we have outstanding warrants to purchase 2,455,736 shares of common stock that were issued in connection with the sale of equity securities in various private placement transactions in 2000, 2001, 2005 and 2006. These warrants have exercise prices ranging from $8.50 to $56.66 per share with a weighted average exercise price of $25.36 and a weighted average remaining contractual life of 4.3 years. The estimated fair value of these warrants at their date of issuance of $20,290,878 is included in shareholders’ equity in our consolidated balance sheets. Refer to “Non Plan Options/Warrants” in Note 8 to the   Consolidated Financial Statements included in Item 8 for information regarding the outstanding warrants.

Our c ontractual obligations and commercial commitments at December 31, 2006 were as follows (see “Lease Commitments” in Note 11 to the Consolidated Financial Statements included in Item 8):

   
Payments due by period
 
 
Contractual Obligations:
 
 
Total
 
1 year
or less
 
2-3
years
 
4 - 5
Years
 
After 5
years
 
Operating leases
 
$
2,252,000
 
$
480,000
 
$
1,005,000
 
$
767,000
 
$
0
 


Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

None.
 
25


Item 8. Consolidated Financial Statements and Supplementary Data


Index to Consolidated Financial Statements
 
Page
   
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC
 
ACCOUNTING FIRM
27
   
CONSOLIDATED FINANCIAL STATEMENTS:
 
   
Consolidated Balance Sheets - December 31, 2006 and 2005
29
   
Consolidated Statements of Operations - for the years ended
 
December 31, 2006, 2005 and 2004
30
   
Consolidated Statements of Shareholders’ Equity - for the years ended
 
December 31, 2006, 2005 and 2004
31
   
Consolidated Statements of Cash Flows - for the years ended
 
December 31, 2006, 2005 and 2004
33
   
Notes to Consolidated Financial Statements - December 31, 2006, 2005
 
and 2004
34
   
   
FINANCIAL STATEMENT SCHEDULE:
 
   
Schedule II - Valuation and Qualifying Accounts
81
   
Schedules other than those listed have been omitted since they are
either not required, not applicable or the information is otherwise
included.

26


R eport of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of ParkerVision, Inc.:

We have completed integrated audits of ParkerVision, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of ParkerVision, Inc. and its subsidiary at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index   presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board   (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 8 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial
 
27

reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



PricewaterhouseCoopers LLP
Jacksonville, Florida
March 8, 2007

 
28


 
PARKERVISION, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2006 AND 2005

   
2006
 
2005
 
CURRENT ASSETS:
         
Cash and cash equivalents
 
$
13,225,528
 
$
10,273,635
 
Short-term investments available for sale
   
0
   
295,555
 
Accounts receivable, net of allowance for doubtful
accounts of $4,856 at December 31, 2005
   
0
   
14,854
 
Prepaid expenses
   
1,025,132
   
1,373,695
 
Other current assets
   
121,903
   
307,205
 
Total current assets
   
14,372,563
   
12,264,944
 
               
PROPERTY AND EQUIPMENT, net
   
2,094,300
   
1,867,884
 
               
OTHER ASSETS, net
   
10,208,484
   
9,698,802
 
Total assets
 
$
26,675,347
 
$
23,831,630
 
               
CURRENT LIABILITIES:
             
Accounts payable
 
$
382,489
 
$
446,953
 
Accrued expenses:
Salaries and wages
   
328,817
   
405,701
 
Professional fees
   
231,372
   
287,667
 
Other accrued expenses
   
116,713
   
286,562
 
Total current liabilities
   
1,059,391
   
1,426,883
 
               
               
DEFERRED RENT
   
433,340
   
5,163
 
Total liabilities
   
1,492,731
   
1,432,046
 
               
COMMITMENTS AND CONTINGENCIES
(Notes 8, 9, and 15)
             
               
SHAREHOLDERS' EQUITY:
             
Common stock, $.01 par value, 100,000,000 shares
authorized, 23,387,566 and 20,958,765 shares
issued and outstanding at December 31, 2006 and
2005, respectively
   
233,876
   
209,588
 
Warrants outstanding
   
20,290,878
   
17,693,482
 
Additional paid-in capital
   
154,056,663
   
138,080,663
 
Accumulated other comprehensive loss
   
0
   
(1,006
)
Accumulated deficit
   
(149,398,801
)
 
(133,583,143
)
Total shareholders' equity
   
25,182,616
   
22,399,584
 
Total liabilities and shareholders' equity  
 
$
26,675,347
 
$
23,831,630
 


The accompanying notes are an integral part of these consolidated financial statements.
 
29

 
PARKERVISION, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


   
2006
 
2005
 
2004
 
               
Product revenue
 
$
0
 
$
995,991
 
$
190,811
 
Royalty revenue
   
0
   
0
   
250,000
 
Net revenues
   
0
   
995,991
   
440,811
 
                     
Cost of goods sold
   
0
   
786,228
   
525,857
 
Write down of inventory to net realizable value
   
0
   
2,250,586
   
2,768,854
 
                        
Gross margin
   
0
   
(2,040,823
)
 
(2,853,900
)
                     
Research and development expenses
   
9,521,194
   
10,284,305
   
11,422,701
 
Marketing and selling expenses
   
2,117,827
   
3,141,187
   
2,484,189
 
General and administrative expenses
   
5,232,652
   
6,037,796
   
6,044,461
 
Impairment loss and (gain) on disposal of equipment
   
(5,191
)
 
1,899,066
   
0
 
Total operating expenses
   
16,866,482
   
21,362,354
   
19,951,351
 
                     
Interest income and other
   
1,050,824
   
303,729
   
217,382
 
                     
Loss from continuing operations
   
(15,815,658
)
 
(23,099,448
)
 
(22,587,869
)
                     
Gain from discontinued operations
   
0
   
0
   
7,773,326
 
                     
Net loss
   
(15,815,658
)
 
(23,099,448
)
 
(14,814,543
)
                     
Unrealized gain (loss) on investment securities
   
1,006
   
(579
)
 
(32,173
)
                     
Comprehensive loss
 
$
(15,814,652
)
$
(23,100,027
)
$
(14,846,716
)
                     
Basic and diluted net loss per common share:
                   
Continuing operations
 
$
(0.68
)
$
(1.14
)
$
(1.25
)
Discontinued operations
   
0.00
   
0.00
   
0.43
 
Basic and diluted net loss per common share
 
$
(0.68
)
$
(1.14
)
$
(0.82
)



The accompanying notes are an integral part of these consolidated financial statements.
 
30

 
PARKERVISION, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


   
2006
 
2005
 
2004
 
Common shares - beginning of year
   
20,958,765
   
18,006,324
   
17,959,504
 
Issuance of common stock upon exercise of options and Warrants
   
39,250
   
63,900
   
0
 
Issuance of restricted common stock as employee Compensation
   
5,089
   
0
   
46,820
 
Issuance of common stock in private offering
   
2,373,335
   
2,880,000
   
0
 
Issuance of common stock as payment for services
   
11,127
   
8,541
   
0
 
Common shares - end of year
   
23,387,566
   
20,958,765
   
18,006,324
 
                     
Par value of common stock - beginning of year
 
$
209,588
 
$
180,063
 
$
179,595
 
Issuance of common stock upon exercise of options and Warrants
   
393
   
640
   
0
 
Issuance of restricted common stock as employee Compensation
   
51
   
0
   
468
 
Issuance of common stock in private offering
   
23,733
   
28,800
   
0
 
Issuance of common stock as payment for services
   
111
   
85
   
0
 
Par value of common stock - end of year
 
$
233,876
 
$
209,588
 
$
180,063
 
                     
Warrants outstanding - beginning of year
 
$
17,693,482
 
$
14,573,705
 
$
16,807,505
 
Issuance of warrants in connection with private offering
   
2,597,396
   
3,119,777
   
0
 
Expiration of warrants
   
0
   
0
   
(2,233,800
)
Warrants outstanding - end of year
 
$
20,290,878
 
$
17,693,482
 
$
14,573,705
 
                     
Additional paid-in capital - beginning of year
 
$
138,080,663
 
$
120,488,205
 
$
118,048,964
 
Issuance of common stock upon exercise of options and Warrants
   
239,642
   
425,539
   
0
 
Issuance of restricted common stock as employee Compensation
   
50,228
   
0
   
205,441
 
Issuance of common stock in private offering
   
13,625,721
   
16,967,923
   
0
 
Issuance of common stock as payment for services
   
164,313
   
198,996
   
0
 
Stock option compensation expense
   
1,896,096
   
0
   
0
 
Expiration of warrants
   
0
   
0
   
2,233,800
 
Additional paid-in capital - end of year
 
$
154,056,663
 
$
138,080,663
 
$
120,488,205
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
31

 
PARKERVISION, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
 
   
  2006
 
  2005
 
2004
 
Accumulated other comprehensive (loss) income - beginning  of year
 
$
(1,006
)
$
(427
)
$
31,746
 
Change in unrealized loss on investments
   
1,006
   
(579
)
 
(32,173
)
Accumulated other comprehensive (loss) income - end of  y ear
 
$
0
 
$
(1,006
)
$
(427
)
                     
                     
Accumulated deficit - beginning of year
 
$
(133,583,143
)
$
(110,483,695
)
$
(95,669,152
)
Net loss
   
(15,815,658
)
 
(23,099,448
)
 
(14,814,543
)
Accumulated deficit - end of year
 
$
(149,398,801
)
$
(133,583,143
)
$
(110,483,695
)
                     
Total shareholders’ equity - beginning of year
 
$
22,399,584
 
$
24,757,851
 
$
39,398,658
 
Issuance of common stock upon exercise of options and warrants
   
240,035
   
426,179
   
0
 
Issuance of restricted common stock as employee compensation
   
50,279
   
0
   
205,909
 
Issuance of common stock and warrants in private offering
   
16,246,850
   
20,116,500
   
0
 
Issuance of common stock as payment for services
   
164,424
   
199,081
   
0
 
Stock option compensation expense
   
1,896,096
   
0
   
0
 
Comprehensive loss
   
(15,814,652
)
 
(23,100,027
)
 
(14,846,716
)
Total shareholders’ equity - end of year
 
$
25,182,616
 
$
22,399,584
 
$
24,757,851
 











The accompanying notes are an integral part of these consolidated financial statements.
 
32

 
PARKERVISION, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004

   
2006
 
2005
 
2004
 
CASH FLOWS FROM OPERATING ACTIVITIES:
             
Net loss
 
$
(15,815,658
)
$
(23,099,448
)
$
(14,814,543
)
Adjustments to reconcile net loss to net cash used in operating activities:
                   
Depreciation and amortization
   
1,690,497
   
2,460,324
   
3,101,138
 
Amortization of premium on investments
   
1,561
   
27,437
   
42,683
 
Provision for obsolete inventories
   
0
   
67,940
   
320,533
 
Write-down of inventory to net realizable value
   
0
   
2,250,586
   
2,768,854
 
Impairment loss on other assets
   
0
   
1,245,792
   
0
 
Stock compensation
   
2,350,853
   
940,783
   
1,005,909
 
Gain on sale of discontinued operations
   
0
   
0
   
(11,220,469
)
(Gain)/loss on sale of equipment
   
(5,191
)
 
653,702
   
0
 
Changes in operating assets and liabilities, net of disposition in 2004:
                   
Accounts receivable, net
   
14,854
   
295,546
   
758,953
 
Inventories
   
0
   
307,237
   
(5,535,571
)
Prepaid and other assets
   
150,630
   
1,073,908
   
105,062
 
Accounts payable and accrued expenses
   
(348,400
)
 
(1,483,338
)
 
1,261,072
 
Deferred revenue
   
0
   
(407,403
)
 
397,845
 
Deferred rent
   
515,751
   
0
   
0
 
Total adjustments
   
4,370,555
   
7,432,514
   
(6,993,991
)
Net cash used in operating activities
   
(11,445,103
)
 
(15,666,934
)
 
(21,808,534
)
                     
CASH FLOWS FROM INVESTING ACTIVITIES:
                   
Purchase of investments available for sale
   
0
   
(250,000
)
 
0
 
Proceeds from maturity/sale of investments
   
295,000
   
1,290,000
   
1,570,000
 
Proceeds from sale of property and equipment and video business unit assets
   
36,867
   
273,874
   
12,153,939
 
Purchase of property and equipment
   
(1,087,889
)
 
(744,043
)
 
(995,567
)
Payment for patent costs
   
(1,333,868
)
 
(1,606,842
)
 
(1,952,812
)
Net cash (used in) provided by investing activities
   
(2,089,890
)
 
(1,037,011
)
 
10,775,560
 
                     
CASH FLOWS FROM FINANCING ACTIVITIES:
                   
Net proceeds from issuance of common stock
   
16,486,886
   
20,542,679
   
0
 
Net cash provided by financing activities
   
16,486,886
   
20,542,679
   
0
 
                     
NET CHANGE IN CASH AND CASH EQUIVALENTS
   
2,951,893
   
3,838,734
   
(11,032,974
)
                     
CASH AND CASH EQUIVALENTS, beginning of year
   
10,273,635
   
6,434,901
   
17,467,875
 
                     
CASH AND CASH EQUIVALENTS, end of year
 
$
13,225,528
 
$
10,273,635
 
$
6,434,901
 

The accompanying notes are an integral part of these consolidated financial statements.

33

PARKERVISION, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 and 2004


1.   THE COMPANY AND NATURE OF BUSINESS

ParkerVision, Inc. (the "Company”) was incorporated under the laws of the state of Florida on August 22, 1989. Following the sale of its video operations in May 2004 (Note 15), the Company operates in a single segment - wireless technologies and products.

2. LIQUIDITY AND CAPITAL RESOURCES

The Company operates in a highly competitive industry with rapidly changing and evolving technologies and an increasing number of market entrants. The Company's potential competitors have substantially greater financial, technical and other resources than those of the Company. The Company has made significant investments in developing its technologies and products, the returns on which are dependent upon the generation of future revenues for realization. The Company has not yet generated sufficient revenues to offset its expenses and, thus, has utilized proceeds from the sale of its equity securities to fund its operations.

The Company has incurred losses from operations and negative cash flows in every year since inception and has utilized the proceeds from the sale of its equity securities to fund operations. For the year ended December 31, 2006, the Company incurred a net loss of approximately $15.8 million and negative cash flows from operations of approximately $11.4 million. At December 31, 2006, the Company had an accumulated deficit of approximately $149.4 million and working capital of approximately $13.3 million.

Management does not expect that revenues in 2007 will be sufficient to offset the expenses from continued investment in product development and marketing activities. Therefore, management expects operating losses and negative cash flows to continue in 2007 and possibly beyond.

On February 23, 2007, the Company completed the sale of an aggregate of 992,441 shares of its common stock to a limited number of domestic   institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represent 4.1% of the Company’s outstanding common stock on an after-issued basis, were sold at a price of $8.50 per share, for net proceeds of approximately $8.4 million. The net proceeds from this transaction will be used for general working capital purposes.

The long-term continuation of the Company’s business plans is dependent upon generation of sufficient revenues from its technologies and products to offset expenses. In the event that the Company does not generate sufficient revenues, it will be required to obtain additional funding through public or private financing and/or reduce certain discretionary spending. Management believes certain operating costs could be reduced if working capital decreases significantly and additional funding is not available. In addition, the Company currently has no outstanding long-term debt obligations. Failure to generate sufficient revenues, raise additional capital and/or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to meet its future liquidity needs and achieve its intended long-term business objectives.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation
The Company formed a wholly owned subsidiary, D2D, LLC on October 2, 2000. The consolidated financial statements include the accounts of ParkerVision, Inc. and D2D, LLC, after elimination of all significant inter-company transactions and accounts.

34

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The more significant estimates made by management include the volatility, risk-free interest rate, forfeiture rate and estimate lives of share-based awards used in the estimate of the fair market value of share-based compensation, the assessment of recoverability of long-lived assets and amortization period for intangible and long-lived assets, and the valuation allowance for deferred taxes. Actual results could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.

Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and cash equivalents to include cash on hand, interest-bearing deposits, overnight repurchase agreements and investments with original maturities of three months or less when purchased.
 
Investments
Investments consist of funds invested in U.S. Treasury notes, U.S. Treasury bills and mortgage- backed securities guaranteed by the U.S. government. These investments are classified as available for sale and are intended to be held for indefinite periods of time and are not intended to be held to maturity. Securities available for sale are recorded at fair value. Net unrealized holding gains and losses on securities available for sale, net of deferred income taxes, are included as a separate component of shareholders’ equity in the consolidated balance sheet until these gains or losses are realized. If a security has a decline in fair value that is other than temporary, then the security will be written down to its fair value by recording a loss in the consolidated statement of operations.
 
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is based on management’s assessment of the collectibility of customer accounts. Management regularly reviews the allowance by considering factors such as historical experience, age of the account balance and current economic conditions that may affect a customer’s ability to pay.

Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined using the straight-line method over the following estimated useful lives:

Manufacturing and office equipment
 
5-7 years
Leasehold improvements
 
Remaining life of lease
Aircraft
 
20 years
Furniture and fixtures
 
7 years
Computer equipment and software
 
3-5 years

The cost and accumulated depreciation of assets sold or retired are removed from their respective accounts, and any resulting net gain or loss is recognized in the accompanying consolidated statements of operations.

35

The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts, both internally and externally, that may suggest impairment. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the assets.

Intangible Assets
Patents, copyrights and other intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to twenty years. Management of the Company evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists.

Accounting for Stock Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” (“FAS 123R”) which establishes accounting for equity instruments exchanged for employee services. Under the provisions of FAS 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity grant). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to FAS 123R. The Company has applied the provisions of SAB 107 in its adoption of FAS 123R.

Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”. The Company elected to adopt the modified prospective transition method as provided by FAS 123R and, accordingly, financial statement amounts for the prior periods have not been retroactively adjusted to reflect the fair value method of expensing share-based compensation. Under the modified prospective method, share-based expense recognized after adoption includes: (a) share-based expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as amended by SFAS 148 and (b) share-based expense for all awards granted or modified subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FAS 123R. Further, as required under FAS123R, the Company estimates forfeitures for options granted which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of the Company’s stock-based compensation expense.

In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, (“FSP FAS 123R-3”). FSP FAS 123R-3 provides a practical exception when a company transitions to the accounting requirements in FAS123R. FAS123R requires a company to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to adopting FAS123R (termed the “APIC Pool”), assuming the company had been following the recognition provisions prescribed by SFAS No. 123. We have elected to use the shortcut method under FAP FAS 123R-3 to calculate our APIC Pool.

36

Revenue Recognition
Revenue from product sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the sales price is fixed or determinable and collection of the receivable is reasonably assured. The Company did not recognize any product revenue in 2006. The Company’s product revenue for 2005 and 2004 relates primarily to products sold through retail distribution channels, with limited sales direct to end users through the Company’s own website and direct value added resellers.

In addition to reserves for sales returns, prior year gross product revenue was reduced for price protection programs, customer rebates and cooperative marketing expenses deemed to be sales incentives to derive net revenue. Revenues for the periods ended December 31, 2005 and 2004 were reduced for cooperative marketing costs in the amount of $29,932 and $233,201, respectively.

Shipping and Handling Fees and Costs
The Company included shipping and handling fees billed to customers in net revenue in prior years. Shipping and handling costs associated with outbound freight are included in sales and marketing expenses and totaled $29,365 and $29,234 for the years ended December 31, 2005 and 2004, respectively.

Research and Development Expenses
Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third party contractors, prototype expenses, maintenance costs for software development tools, depreciation, amortization, and a portion of facilities costs.

Advertising Costs
Advertising costs are charged to operations when incurred. The Company incurred advertising costs related to continuing operations of $1,893, $107,495, and $215,747, for the years ended December 31, 2006, 2005 and 2004, respectively.

Loss per Common Share
Basic loss per common share is determined based on the weighted-average number of common shares outstanding during each year. Diluted loss per common share is the same as basic loss per common share as all potential common shares are excluded from the calculation, as their effect is anti-dilutive. The weighted-average number of common shares outstanding for the years ended December 31, 2006, 2005 and 2004, was 23,130,036, 20,327,750, and 17,989,135, respectively. Options and warrants to purchase 7,680,326, 7,016,572, and 6,620,603, shares of common stock that were outstanding at December 31, 2006, 2005 and 2004, respectively, were excluded from the computation of diluted earnings per share as the effect of these options and warrants would have been anti-dilutive.

Other Comprehensive Loss
The Company’s other comprehensive loss is comprised of net unrealized losses on investments available-for-sale which are included, net of tax, in accumulated other comprehensive (loss) income in the consolidated statements of shareholders’ equity.

Leases
The Company uses operating leases for its facilities. For those leases that contain rent escalations or rent concessions, the Company records the total rent payable during the lease term on a straight-line basis over the term of the leases with the difference between the rents paid and the straight-line rent recorded as a deferred rent liability in the accompanying Consolidated Balance Sheets.

37

Consolidated Statements of Cash Flows
On May 31, 2006, the Company issued options, valued at approximately $63,000, under the terms of the 2000 Performance Equity Plan as consideration for professional services (see Note 8).

In March 2006, the Company recorded leasehold improvements of $437,314 with a corresponding entry to deferred rent, reflecting a tenant improvement allowance under the lease agreement for the Company’s new corporate location (see Notes 5 and 11). The increase in deferred rent is included as a cash inflow in net cash used for operating activities and the related increase in leasehold improvements is included as a cash outflow in net cash used for investing activities in the accompanying consolidated statements of cash flows.

In connection with the private placement of 2,373,355 shares of the Company’s common stock on February 3, 2006, the Company issued warrants to purchase 593,335 shares of common stock. These warrants were recorded at their relative fair value of approximately $2.6 million (see Note 9).

The Company issued 5,092 shares of its common stock valued at approximately $53,000 on April 3, 2006, 6,035 shares of its common stock valued at approximately $53,000 on January 3, 2006 and 8,541 shares of its common stock valued at approximately $53,000 on October 3, 2005 as consideration for engineering consulting services (see Note 9).
 
In connection with the private placement of 2,880,000 shares of the Company’s common stock on March 10, 2005, the Company issued warrants to purchase 720,000 shares of common stock. These warrants were recorded at their estimated fair value of approximately $3.1 million (see Note 9). On April 12, 2005, the Company issued options, valued at approximately $146,000, under the terms of the 2000 Performance Equity Plan as consideration for professional services (see Note 8).
 
On May 14, 2004, the Company issued 46,820 shares of restricted common stock, valued at approximately $206,000, under the terms of the 2000 Performance Equity Plan to former employees as part of the severance package pertaining to the discontinued operations (see Notes 8,9 and 15).

Income Tax Policy
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.

Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure related to the use of fair value measures in financial statements. SFAS 157 does not expand the use of fair value measures in financial statements, but standardizes its definition and guidance in GAAP. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We will adopt the provisions of SFAS 157 on January 1, 2008. We have evaluated SFAS 157 and do not anticipate that it will have an impact on our financial statements when adopted.

38

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statement misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of (1) the error quantified as the amount by which the current year income was misstated (“rollover method”) or (2) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (“iron curtain method”). The guidance provided by SAB 108 requires both methods to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first filing of prior year financial statements after adoption. The cumulative effect of the correction would be reflected in the opening balance sheet with appropriate disclosure of the nature and amount of each individual error corrected in the cumulative adjustment, as well as a disclosure of the cause of the error and that the error had been deemed to be immaterial in the past. SAB 108 is effective for the fiscal year ended December 31, 2006 . The Company has evaluated SAB 108 and determined that it does not have an impact on its financial statements.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides a comprehensive model for how a company should recognize, measure, present, and disclose uncertain tax positions that a company has taken or expects to take on a tax return. FIN 48 becomes effective for annual periods beginning after December 15, 2006. The Company will adopt the provisions of FIN 48 effective January 1, 2007. The Company is in the process of evaluating the impact of Fin 48 on the financial statements when adopted.

4. PREPAID EXPENSES

Prepaid expenses consisted of the following at December 31, 2006 and 2005:

   
2006
 
2005
 
Prepaid insurance
 
$
558,356
 
$
674,327
 
Prepaid services
   
0
   
200,000
 
Other prepaid expenses
   
466,776
   
499,368
 
   
$
1,025,132
 
$
1,373,695
 
5. PROPERTY AND EQUIPMENT, NET

Property and equipment, at cost, consisted of the following at December 31, 2006 and 2005:

   
2006
 
2005
 
Equipment and software
 
$
8,249,267
 
$
8,094,406
 
Leasehold improvements
   
762,076
   
282,993
 
Aircraft
   
340,000
   
340,000
 
Furniture and fixtures
   
502,643
   
471,788
 
     
9,853,986
   
9,189,187
 
Less accumulated depreciation and amortization
   
(7,759,686
)
 
(7,321,303
)
   
$
2,094,300
 
$
1,867,884
 
 
39

Depreciation expense related to property and equipment was $829,797, $1,321,477, and $1,814,892, in 2006, 2005, and 2004, respectively. Depreciation related to discontinued operations of $159,467 in 2004 is included in gain from discontinued operations.

In 2005, the Company recognized impairment charges on certain long-lived assets related to its retail activities. These charges include impairment of fixed assets, primarily the manufacturing and prototype facility assets, of approximately $626,000. These impairment charges are included as impairment loss in the consolidated statement of operations.

6. OTHER ASSETS

Other assets consisted of the following at December 31, 2006 and 2005:

   
2006
 
 
 
Gross
Carrying Amount
 
Accumulated Amortization
 
 
Net Value
 
Patents and copyrights
 
$
13,426,154
 
$
3,706,477
 
$
9,719,677
 
Prepaid licensing fees
   
705,000
   
606,250
   
98,750
 
Deposits and other
   
390,057
   
0
   
390,057
 
   
$
14,521,211
 
$
4,312,727
 
$
10,208,484
 
                     
   
2005
   
Gross Carrying Amount
(net of impairment)
 
 
Accumulated Amortization
 
 
Net Value
 
Patents and copyrights
 
$
12,093,007
 
$
3,036,801
 
$
9,056,206
 
Prepaid licensing fees
   
705,000
   
415,250
   
289,750
 
Prepaid services, non current portion
   
200,000
   
200,000
   
0
 
Deposits and other
   
352,846
   
0
   
352,846
 
   
$
13,350,853
 
$
3,652,051
 
$
9,698,802
 

The Company has pursued an aggressive schedule for filing and acquiring patents related to its wireless technologies. Patent costs represent legal and filing costs incurred to obtain patents and trademarks for product concepts and methodologies developed by the Company. Capitalized patent costs are being amortized over the estimated lives of the related patents, ranging from fifteen to twenty years.

In 2005, the Company recognized impairment charges on certain long-lived assets related to its retail activities. These charges include impairment of prepaid license fees of approximately $662,000, and impairment of other intangible assets of approximately $584,000. These impairment charges are included as impairment loss in the consolidated statement of operations.
 
40

 
Amortization expense for the years ended December 31, 2006, 2005 and 2004 is as follows:
 
       
Amortization Expense
 
   
Weighted average estimated life
(in years)
 
2006
 
2005
 
2004
 
                   
Patents and copyrights
   
17
 
$
669,700
 
$
574,324
 
$
555,504
 
Prepaid licensing fees
   
4
   
191,000
   
424,333
   
613,917
 
Other intangibles
   
3
   
0
   
140,190
   
116,825
 
Total amortization
       
$
860,700
 
$
1,138,847
 
$
1,286,246
 

Amortization related to discontinued operations of $65,637 for 2004 is included in gain from discontinued operations.

Future estimated amortization expense for other assets that have remaining unamortized amounts as of December 31, 2006 were as follows:

2007
 
$780,750
2008
 
$694,500
2009
 
$694,500
2010
 
$694,500
2011
 
$694,500


7. INCOME TAXES AND TAX STATUS

No current or deferred tax provision or benefit was recorded for 2006, 2005 and 2004 as a result of current losses and full deferred tax valuation allowances for all periods. A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% for the years ended December 31, 2006, 2005 and 2004 is as follows:

   
2006
 
2005
 
2004
 
Tax benefit at statutory rate
 
$
(5,377,324
)
$
(7,853,812
)
$
(5,036,945
)
State tax benefit
   
(553,548
)
 
(808,481
)
 
(518,509
)
Increase in valuation allowance
   
6,340,888
   
9,454,464
   
6,382,942
 
Research and development credit
   
(597,550
)
 
(642,769
)
 
(733,481
)
Other
   
187,534
   
(149,402
)
 
(94,007
)
   
$
0
 
$
0
 
$
0
 
 
 
41

The Company’s deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax bases of the Company’s assets and liabilities at December 31, 2006 and 2005:

   
2006
 
2005
 
Gross deferred tax assets:
         
Net operating loss carryforward
 
$
54,830,089
 
$
50,158,875
 
Research and development credit
   
10,077,457
   
9,121,377
 
Patents and other
   
1,610,196
   
1,522,373
 
Stock compensation
   
588,358
   
0
 
Accrued liabilities
   
50,100
   
78,162
 
     
67,156,200
   
60,880,787
 
Less valuation allowance
   
(67,042,100
)
 
(60,701,212
)
     
114,100
   
179,575
 
Gross deferred tax liabilities:
             
Fixed assets
   
114,100
   
82,713
 
Restricted stock issuance
   
0
   
96,862
 
 
   
114,100
   
179,575
 
Net deferred tax asset
 
$
0
 
$
0
 

The Company has recorded a valuation allowance to state its deferred tax assets at estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income. At December 31, 2006, the Company had net operating loss (“NOL”) and research and development tax credit carry-forwards for income tax purposes of $146,213,571 and $10,077,457, respectively, which expire in varying amounts from 2008 through 2025. The Company’s ability to benefit from the net operating loss and research and development tax credit carry-forwards could be limited under certain provisions of the Internal Revenue Code if ownership of the Company changes by more than 50%, as defined.

 
8. STOCK OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION PLANS:  

The following table presents share-based compensation expense included in the Company’s consolidated statements of operations for the years ended December 31, 2006, 2005 and 2004, respectively:

   
Year ended December 31,
 
 
 
2006
 
2005
 
2004
 
Research and development expense
 
$
819,366
 
$
53,333
 
$
57,977
 
Sales and marketing expense
   
336,241
   
-
   
144,330
 
General and administrative expense
   
1,195,246
   
887,450
   
803,602
 
                     
Total share-based expense
 
$
2,350,853
 
$
940,783
 
$
1,005,909
 

The Company did not recognize compensation expense for employee stock option awards for the years ended December 31, 2005 and 2004 when the exercise price of the employee stock award equaled the market price of the underlying stock on the date of grant. The Company did recognize compensation expense for non-employee share-based awards of $940,783 and $800,000 for the years ended December 31, 2005 and 2004, respectively. In addition, the Company recognized the fair value of restricted stock awards to employees, based on market price of the stock on the date of grant, of $205,909 for the year ended December 31, 2004. The Company did not capitalize any expense related to share-based payments.  The Company estimates the fair value of each option award on the date of the grant using the Black-Scholes option valuation model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield.

42

The fair value of each option grant for the year ended December 31, 2006 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

   
Year ended
 December 31, 2006
Expected option term (1)
 
4.25 to 7 years
Expected volatility factor (2)
 
69.37% to 80.33%
Risk-free interest rate (3)
 
4.18% to 5.21%
Expected annual dividend yield
 
0%

(1)  
The expected term was determined based on historical activity for grants with similar terms and for similar groups of employees and represents the period of time that options are expected to be outstanding. For employee options, groups of employees with similar historical exercise behavior are considered separately for valuation purposes. For directors and named executive officers, the contractual term is used as the expected term based on historical behavior. In cases where there was not sufficient historical information for grants with similar terms, the simplified, or “plain-vanilla” method of estimating option life was utilized.

(2)  
The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the most recent period equal to the expected option life of the grant.

(3)  
The risk-free interest rate for periods equal to the expected term of the share option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The Company had previously adopted the provisions of SFAS No. 123, as amended by SFAS No. 148, through disclosure only. The following table illustrates the effect on the net loss and loss per share for the years ended December 31, 2005 and 2004, as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based employee compensation.

   
Year ended December 31,
 
 
 
2005
 
2004
 
Net loss, as reported
 
$
(23,099,448
)
$
(14,814,543
)
Stock-based compensation expense that would
have been included in reported net loss if the
fair value provisions of SFAS No. 123 had been
applied to all awards
   
(8,302,921
)
 
(12,213,448
)
Pro forma net loss
 
$
(31,402,369
)
$
(27,027,991
)
Basic and diluted net loss per share:
             
As reported
 
$
(1.14
)
$
(0.82
)
Proforma
 
$
(1.54
)
$
(1.50
)

43

The fair value of each option grant for the years ended December 31, 2005 and 2004 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 
Year ended December 31, 2005
Year ended December 31, 2004
Expected option term
3 to 10 years
5 to 10 years
Expected volatility factor
76.42% to 85.55%
77.36% to 79.91%
Risk-free interest rate
3.72% to 4.49%
2.99% to 4.80%
Expected annual dividend yield
0%
0%

Stock Incentive Plans

1993 Stock Plan
The Company adopted a stock plan in September 1993 (the “1993 Plan”). As of September 10, 2003, the Company was no longer able to issue grants under the 1993 Plan. The 1993 Plan, as amended, provided for the grant of options and other Company stock awards to employees, directors and consultants, not to exceed 3,500,000 shares of common stock. Options granted to employees and consultants under the 1993 Plan vested for periods up to ten years and are exercisable for a period of five years from the date the options vest. Options granted to directors under the 1993 Plan were exercisable immediately and expire ten years from the date of grant.
  
2000 Performance Equity Plan
The Company adopted a performance equity plan in July 2000 (the “2000 Plan”). The 2000 Plan provides for the grant of options and other Company stock awards to employees, directors and consultants, not to exceed 5,000,000 shares of common stock. The plan provides for benefits in the form of incentive stock options, nonqualified stock options, and stock appreciation rights, restricted share awards, stock bonuses and various stock benefits or cash. Options granted to employees and consultants under the 2000 Plan generally vest over periods up to five years and are exercisable for a period of up to five years from the date the options become vested. Options granted to directors under the 2000 Plan are generally exercisable immediately and expire seven to ten years from the date of grant. Options to purchase 895,093 shares of common stock were available for future grants under the 2000 Plan at December 31, 2006.

A summary of option activity under the 1993 and 2000 Plans as of December 31, 2006, and changes during the year then ended is presented below:

 
 
Shares
 
Weighted-Average
Exercise
Price
 
Weighted-Average Remaining Contractual Term
 
Aggregate Intrinsic
Value ($)
 
Outstanding at beginning of year
   
5,039,171
 
$
21.51
           
Granted
   
705,407
   
8.84
             
Exercised
   
(39,250
)
 
10.14
       
$
157,910
 
Forfeited
   
(110,544
)
 
9.19
             
Expired
   
(485,194
)
 
19.12
                
Outstanding at end of year
   
5,109,590
 
$
20.38
   
4.29 years
 
$
7,522,307
 
Exercisable at end of year
   
4,181,537
 
$
23.20
   
3.82 years
 
$
4,321,179
 

44

 
A summary of the status of the Company’s nonvested shares as of December 31, 2006, and changes during the year ended December 31, 2006 is presented below:

   
Nonvested Shares
 
 
 
Shares
 
Weighted-Average
Grant-Date
Fair Value
 
Nonvested at January 1, 2006
   
675,898
 
$
5.00
 
Granted
   
705,407
   
5.41
 
Vested
   
(342,708
)
 
6.15
 
Forfeited
   
(110,544
)
 
5.61
 
Nonvested at December 31, 2006
   
928,053
 
$
4.82
 

The total fair value of shares vested during the year ended December 31, 2006 was $2,107,390. As of December 31, 2006, there was $3,492,623 of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the 1993 and 2000 Plans. That cost is expected to be recognized over a weighted-average period of 2.4 years.

The options granted under the 2000 Plan include a grant to an outside consultant in July 2006 for the purchase of up to 127,500 shares of its common stock at an exercise price of $9.10 per share. These options were granted as performance incentives in connection with a consulting agreement with a thirty-month term. The number of options that will vest and the date on which they will vest are dependent upon the completion of specific performance conditions. Vested options, if any, will remain exercisable for four years from the date of grant. The consulting arrangement may be terminated by the company for any reason with thirty days notice, and upon such termination, any unvested shares shall be forfeited. As the number of shares that will ultimately vest is indeterminable at the date of grant, management must adjust the options to their estimated fair value at each interim reporting date until vesting occurs. Fair value is estimated at each interim reporting date using the Black-Scholes option pricing model and then amortized on a straight line basis over the estimated remaining requisite service period. At December 31, 2006, the total estimated fair value of these options was approximately $94,950. For the year ended December 31, 2006, approximately $18,990 of expense related to these options was recognized in the Company’s consolidated statement of operations.

The options granted under the 2000 Plan also include a grant to an outside consultant on May 31, 2006 for the purchase of an aggregate of 10,000 shares of its common stock at an exercise price of $10.20 per share for consulting services to be provided over a one year period. The options vest in four equal quarterly installments and expire five years from the grant date. The total fair value of these options of approximately $63,000 was estimated as of the date of grant using the Black-Scholes option pricing model and will be amortized to expense in the Company’s consolidated statement of operations over the one-year term of the agreement.  

On April 12, 2005, the Company granted stock options to an outside consultant under the 2000 Plan in connection with a consulting agreement to purchase an aggregate of 40,000 shares of its common stock at an exercise price of $10 per share. These options expire thirty-six months from the date they become vested. The first 20,000 options vested ratably over fifteen months. The remaining 20,000 options vested if certain market conditions were met. These market conditions were not met and the options were cancelled unvested in 2006. The total fair value of these options of approximately $146,000 was estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 3.86%, no expected dividend yield, expected life of three years and expected volatility of 81.86%. The estimated fair value of the options was amortized to expense in the Company’s consolidated statement of operations over the term of the contract. For the years ended December 31, 2006 and 2005, approximately $58,550 and $87,450 was amortized to expense related to this contract, respectively

45


Non-Plan Options/Warrants
The Company has granted options and warrants outside the 1993 and 2000 Plans for employment inducements, non-employee consulting services, and for underwriting and other services in connection with securities offerings. Non-plan options and warrants are generally granted with exercise prices equal to fair market value of the underlying shares at the date of grant.

A summary of non-plan option and warrant activity as of December 31, 2006, and changes during the year then ended is presented below:

 
 
 
 
 
 
Shares
 
 
Weighted-Average
Exercise
Price
 
Weighted-Average Remaining Contractual Term
 
 
 
Aggregate Intrinsic
Value ($)
 
Outstanding at beginning of period
   
1,977,401
 
$
30.29
           
Granted
   
593,335
   
8.50
             
Exercised
   
-
   
-
         
 
 
Forfeited
   
-
   
-
             
Expired
   
-
   
-
             
Outstanding at end of period
   
2,570,736
 
$
25.26
   
4.2 years
 
$
3,120,338
 
Exercisable at end of period
   
2,570,736
 
$
25.26
   
4.2 years
 
$
3,120,338
 

The weighted average fair value of non-plan warrants granted in the year ended December 31, 2006 was $4.38 per share.

Of the non-plan options and warrants outstanding and exercisable at December 31, 2006, warrants representing 2,455,736 shares were issued in connection with the sale of equity securities in various private placement transactions in 2000, 2001, 2005 and 2006. The estimated fair value of these warrants at the time of issuance of $20,290,878 is included in shareholders’ equity in the Company’s consolidated balance sheets. The remaining 115,000 share options outstanding and exercisable at December 31, 2006 represent options granted to employees and directors in 1999.

Upon exercise of options under the 1993 Plan and the 2000 Plan, the Company issues new registered shares of its common stock. Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2006 was $240,035. No tax benefit was realized for the tax deductions from exercise of the share-based payment arrangements for the year ended December 31, 2006 as the benefits were fully offset by a valuation allowance.

46


9. STOCK AUTHORIZATION AND ISSUANCE
 
Preferred Stock
ParkerVision has 15,000,000 shares of preferred stock authorized for issuance at the direction of the board of directors. As of December 31, 2006, the Company has no outstanding preferred stock.

On November 17, 2005, the board of directors designated 100,000 shares of authorized preferred stock as the Series E Preferred Stock in conjunction with its adoption of a Shareholder Protection Rights Agreement (Note 10).
 
Common Stock and Warrants

On February 23, 2007, the Company completed the sale of an aggregate of 992,441 shares of its common stock to a limited number of domestic   institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represent 4.1% of the Company’s outstanding common stock on an after-issued basis, were sold at a price of $8.50 per share, for net proceeds of approximately $8.4 million. The net proceeds from this transaction will be used for general working capital purposes.

The Common Stock issued in the private offering will be registered by the Company for re-offer and re-sale by the investors. The Company has committed to file the registration statement within 45 days of closing and to cause the registration statement to become effective on or prior to the earlier of (i) the fifth trading day following the date that we are notified by the SEC that the registration statement will not be reviewed or is no longer subject to review, and (ii) 120 days after the closing date. If the Common Stock is not registered for resale within those time periods, the Company will pay liquidated damages in the amount of one percent of the amount invested for each 30-day period (pro rated) until the filing or effectiveness of the registration statement, up to a maximum of ten percent of the gross proceeds.

On February 3, 2006, ParkerVision completed the sale of an aggregate of 2,373,335 shares of common stock to a limited number of institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represented 10.2% of the Company’s outstanding common stock on an after-issued basis, were sold at a price of $7.50 per share, for net proceeds of approximately $16.2 million. Warrants to purchase an additional 593,335 shares of common stock were issued in connection with the transaction for no additional consideration. The warrants were immediately exercisable at an exercise price of $8.50 per share and expire on February 3, 2011. The warrants may be redeemed by the Company after February 3, 2008, at $.01 per warrant, provided that the shares underlying the warrants are registered for resale and the common stock traded at a volume weighted-average price equal to or greater than 200% of the then exercise price for a prescribed period of time. The estimated fair value of the warrants of $2,597,396 was classified as equity on the issuance date.

On September 19, 2005, the Company entered into a consulting agreement with an independent engineering consultant to perform services for the Company over a one year period. Total consideration for the services in the amount of $160,000 was payable to the consultant in cash or in shares of the Company’s common stock at the Company’s sole option. The Company issued 11,127 and 8,541 shares of its common stock in 2006 and 2005, respectively in settlement of this obligation. The shares were issued under the Company’s 2000 Plan.

47

On March 14, 2005, ParkerVision consummated the sale of an aggregate of 2,880,000 shares of common stock to a limited number of institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represented 14% of the Company’s outstanding common stock on an after-issued basis, were sold at a price of $7.50 per share, for net proceeds of approximately $20.1 million. Warrants to purchase an additional 720,000 shares of common stock were issued in connection with the transaction for no additional consideration. The warrants were immediately exercisable at an exercise price of $9.00 per share and expire on March 10, 2010. The estimated fair value of the warrants of $3,119,777 was classified as equity on the issuance date.

On May 14, 2004, the Company issued 46,820 shares of restricted common stock, valued at approximately $206,000, under the terms of the 2000 Plan to former employees as part of the severance package pertaining to the discontinued operations (Note 15).

10. SHAREHOLDER PROTECTION RIGHTS AGREEMENT  

On November 21, 2005, the Company adopted a Shareholder Protection Rights Agreement (“Rights Agreement”) which calls for the issuance, on November 29, 2005, as a dividend, rights to acquire fractional shares of Series E Preferred Stock. The Company did not assign any value to the dividend as the value of these rights is not believed to be objectively determinable. The principal objective of the Rights Agreement is to cause someone interested in acquiring the Company to negotiate with the Company’s Board of Directors rather than launch an unsolicited or hostile bid. The Rights Agreement subjects a potential acquirer to substantial voting and economic dilution. Each share of Common Stock issued in the future by the Company will include an attached right.

The rights initially are not exercisable and trade with the Common Stock of the Company. In the future, the rights may become exchangeable for shares of Series E Preferred Stock with various provisions that may discourage a takeover bid. Additionally, the rights have what are known as “flip-in” and “flip-over” provisions that could make any acquisition of the Company more costly to the potential acquirer. The rights may separate from the Common Stock following the acquisition of 15% or more of the outstanding shares of Common Stock by an acquiring person. Upon separation, the holder of the rights may exercise their right at an exercise price of $45 per right (the “Exercise Price”), subject to adjustment and payable in cash.

Upon payment of the exercise price, the holder of the right will receive from the Company that number of shares of Common Stock having an aggregate market price equal to twice the Exercise Price, as adjusted. The Rights Agreement also has a flip over provision allowing the holder to purchase that number of shares of common/voting equity of a successor entity, if the Company is not the surviving corporation in a business combination, at an aggregate market price equal to twice the Exercise Price.

The Company has the right to substitute for any of its shares of Common Stock that it is obligated to issue, shares of Series E Preferred Stock at a ratio of one ten-thousandth of a share of Series E Preferred Stock for each share of Common Stock. The Series E Preferred Stock, if and when issued, will have quarterly cumulative dividend rights payable when and as declared by the board of directors, liquidation, dissolution and winding up preferences, voting rights and will rank junior to other securities of the Company unless otherwise determined by the board of directors.

The rights may be redeemed upon approval of the board of directors at a redemption price of $0.01. The Rights Agreement expires on November 21, 2015.

48

11. COMMITMENTS AND CONTINGENCIES
 
Lease Commitments
The Company entered into a lease agreement for its new headquarters facility in Jacksonville, Florida, pursuant to a non-cancelable lease agreement effective June 1, 2006. The lease provides for a straight-lined monthly rental payment of $15,806 through October 31, 2011 with an option for renewal. The lease provides for a tenant improvement allowance of approximately $437,000 which has been recorded in the accompanying balance sheet as leasehold improvements with a corresponding entry to deferred rent. The leasehold improvements will be depreciated over the lease term. Deferred rent will be amortized as a reduction to lease expense over the lease term.
 
The Company also leases office space in Lake Mary, Florida for a wireless design center. The lease term, as amended, was renewed in September 2005 and provides for a straight-lined monthly rental payment of approximately $20,296 through December 2010.
 
In addition to sales tax payable on base rental amounts, certain leases obligate the Company to pay pro-rated annual operating expenses for the properties. Rent expense, net of sublease income, for the years ended December 31, 2006, 2005, and 2004 was $510,014, $688,258, and $758,718, respectively. Future minimum lease payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year as of December 31, 2006 were as follows:

       
2007
 
$
480,000
 
2008
   
495,000
 
2009
   
510,000
 
2010
   
525,000
 
2011
   
242,000
 
 
 
$
2,252,000
 

Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. The Company believes, based upon advice from outside legal counsel, that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity.  

12. RELATED-PARTY TRANSACTIONS
 
The Company paid approximately $1,532,000, $1,921,000 and $1,519,000 in 2006, 2005 and 2004, respectively, for patent-related legal services to a law firm, of which Robert Sterne, a Company director since September 2006, is a partner.

Through June 2006, the Company leased its headquarters facility from the Chairman and Chief Executive Officer of the Company and Barbara Parker, a related party. The lease provided annual base rental payments of approximately $280,000. The Company did not incur any losses related to early termination of this lease.

13. CONCENTRATIONS OF CREDIT RISK
 
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and accounts receivable. At December 31, 2006, the Company had cash balances on deposit with banks that exceeded the balance insured by the F.D.I.C. The Company maintains its cash investments with what management believes to be quality financial institutions and limits the amount of credit exposure to any one institution.

49

14. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITY

In June 2005, the Company formally announced its decision to exit its retail business activities and terminated 44 employees whose roles were related to these activities. For the year ended December 31, 2005, the Company paid approximately $575,000 in termination benefits which are included in the consolidated statement of operations.

In addition to termination benefits, the Company recognized impairment charges on certain long-lived assets related to its retail activities. These charges include impairment of prepaid license fees of approximately $662,000, impairment of other intangible assets of approximately $584,000 and impairment of fixed assets, primarily the manufacturing and prototype facility assets, of approximately $626,000. These impairment charges are included as impairment loss in the consolidated statement of operations.

The Company also reduced the carrying value of its inventories to their estimated realizable value at June 30, 2005, resulting in a charge of approximately $2.25 million which is included as a separate component of cost of goods sold in the consolidated statement of operations.

During the second half of 2005, the Company reclaimed unsold product inventory from the distribution channel, liquidated its raw materials and finished product inventory through wholesale channels and liquidated its manufacturing and prototype facility assets and other property and equipment utilized in the retail business activities. This process was substantially completed as of December 31, 2005.

15. DISCONTINUED OPERATIONS

On May 14, 2004, the Company completed the sale of certain designated assets of its video division to Thomson Broadcast & Media Solutions, Inc. and Thomson Licensing, SA (collectively referred to as “Thomson”). The assets sold included the PVTV and CameraMan products, services, patents, patent applications, tradenames, trademarks and other intellectual property, inventory, specified design, development and manufacturing equipment, and obligations under outstanding contracts for products and services and other assets.

The net book value of the assets and liabilities sold to Thomson include the following:

Patents, net of accumulated amortization of $731,890
 
$
681,444
 
Inventories, net of reserves for obsolescence of $1,095,354
   
1,702,797
 
Furniture and equipment, net of accumulated depreciation of $913,431
   
584,059
 
Prepaids and other deposits
   
37,364
 
Deferred revenue
   
(1,217,371
)
Warranty reserves
   
(202,911
)
Net book value
 
$
1,585,382
 

Inventories sold consisted of the following:

Purchased materials
 
$
1,069,897
 
Work in process
   
100,089
 
Finished goods
   
359,174
 
Spare parts and demonstration inventory
   
1,268,991
 
     
2,798,151
 
Less allowance for inventory obsolescence
   
(1,095,354
)
 
 
$
1,702,797
 

50

Property and equipment sold consisted of the following:

Manufacturing and office equipment
 
$
1,347,138
 
Tools and dies
   
150,352
 
     
1,497,490
 
Less accumulated depreciation
   
(913,431
)
 
 
$
584,059
 

The sales price of the assets was approximately $13.4 million. The Company recognized a gain on the sale of discontinued operations in 2004 of $11,220,469 which is net of losses on the disposal of remaining assets related to the video operations of $598,088.
 
The Company agreed not to compete with the business of the video division for five years after the closing date. The Company also agreed not to seek legal recourse against Thomson in respect of its intellectual property that was transferred or should have been transferred if used in connection with the video operations. Additionally, the Company must indemnify Thomson against intellectual property claims for an unlimited period of time, without any minimum threshold, and with a separate maximum of $5,000,000. Certain other claims by Thomson will not be limited as to time or amount.
 
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 “Gain from discontinued operations” in the accompanying consolidated statement of operations.
 
Net gain from discontinued operations for the year ended December 31, 2004 includes the following components:
 
   
2004
 
Net revenues
 
$
1,507,955
 
Cost of goods sold and
operating expenses
   
4,955,098
 
Loss from operations
   
(3,447,143
)
Gain on sale of assets
   
11,220,469
 
Gain from discontinued operations
 
$
7,773,326
 

51


16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The quarterly financial data presented below is in thousands except for per share data.
 
   
 
For the three months ended
 
For the year ended
 
 
 
March 31, 2006
 
June 30,
2006
 
September 30, 2006
 
December 31, 2006
 
December 31,
2006
 
                       
Revenues
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
Gross margin
   
0
   
0
   
0
   
0
   
0
 
Net loss from continuing operations
   
(4,344
)
 
(4,319
)
 
(3,787
)
 
(3,366
)
 
(15,816
)
Net loss
 
$
(4,344
)
$
(4,319
)
$
(3,787
)
$
(3,366
)
$