CONDENSED NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
1.
Description of Business
ParkerVision, Inc. and its wholly-owned German subsidiary, ParkerVision GmbH (collectively “ParkerVision”, “we” or the “Company”)
is
in the business of innovating fundamental wireless technologies
and products
.
We have designed and developed a consumer distributed Wi-Fi product line that is being marketed under the brand name Milo
™
.
We
also
design, develop and market our proprietary radio frequency (“RF”) technologies for use in semiconductor circuits for wireless communication products
, including our own internally developed products.
We believe
certain patents protecting
our proprietary technologies have been broadly infringed by others and therefore our business plan
include
s
enforcement of our intellectual property rights through patent infringement litigation and licensing efforts.
2. Liquidity and Going Concern
Our
accompanying condensed
consolidated
financial statements were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liabilities and commitments in the normal course of business. These
condensed
consolidated f
inancial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should we be unable to continue as a going concern.
We have incurred significant losses from operations and negative cash flows in every year since inception and have utilized the proceeds from the sales of our equity securities and contingent funding arrangements with third-parties to fund our operations, including the cost of litigation. For the
six
months ended
June 30
, 2017, we incurred
a
net loss of approximately $
8.5 mi
llion
and
negative cash flows fro
m operations of approximately $7
.
9
million. At
June 30
, 2017, we had an accumulated deficit of approximately $
361
million and working ca
pital of
approximately
$2.7
milli
on. These circumstances raise
substantial
doubt about our ability to continue to operate as a going concern within one year following the issue date of these
condensed
consolidated financial statements.
At
June 30
, 2017
, we had cash, cash equivalents, and available-for-sale securities of approximately
$
2
.
5
million and restricted cash equivalents of approximately
$
0
.
4
million. We used approximately
$
7.9
million of cash for operations
during the
six
months ended
June 30
, 2017. We anticipate
further
increase
s
in our operating and inventory costs in 2017 as we launch
our
Milo
consumer
and small business
Wi-Fi product line.
We anticipate revenues and margin generated by this consumer product will begin to offset our operating costs in the third quarter of 2017, however it is unlikely that the revenues and margins generated in the short-term will be sufficient to fully fund our operations without the need for additional working capital.
Our ability to meet our liquidity needs for the next twelve months is dependent upon (i) our ability to develop, market and sell existing and new products; (ii) our ability to successfully negotiate licensing agreements and/or settlements relating to the use of our technologies by others in excess of our contingent payment obligations; and/or (iii) our ability to
obtain additional debt or equity financing
. We expect that revenue generated from product sales, patent enforcement actions, and technology licenses over the next twelve months may not be sufficient to cover our
working capital requirements
.
In the event we do not generate sufficient revenues to cover our operational costs and contingent repayment obligations, we will be required to use available working capital and/or raise additional working capital through the sale of equity securities or other financing arrangements.
We expect to continue to invest in patent prosecution and enforcement, product development, and sales, marketing, and customer support for our technologies and products. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from our technologies and/or products to offset expenses and contingent payment obligations. In the event that we do not generate sufficient revenues, we will be required to obtain additional funding through public or private debt or equity financing or contingent fee arrangements and/or reduce operating costs. Failure to generate sufficient revenues, raise additional capital through debt or equity financings or contingent fee arrangements, and/or reduce operating costs will have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business objectives.
3. Basis of Presentation
The accompanying unaudited
condensed
consolidated
financial statements for the period ended
June 30
, 2017
were prepared in accordance with accounting principles
generally accepted in the United States
of America (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Operating results for the three
and six
months ended
June 30
, 2017
are not necessarily indicative of the results that may be expected for the year ending December 31, 201
7
or future years.
Certain reclassifications have been made to prior period
amounts to conform to the current period presentation.
A
ll normal and recurring adjustments which, in the opinion of management, are necessary for a fair
statement
of the financial condition and results of
operations have been included.
The year-end
consolidated
balance sheet data was derived from audited financial statements
for the year ended December 31, 201
6
, but does not include all disclosures required by
GAAP
.
These interim
condensed
consolidated
financial statements should be read in conjunction with our latest Annual Report on Form 10-K for the year ended December 31, 201
6
.
The
condensed
consolidated financial statements include the accounts of ParkerVision, Inc. and its wholly-owned
German
subsidiary, ParkerVision GmbH after elimination of all intercompany transactions and accounts.
4. Accounting Policies
There have been no changes in accounting policies from those stated in our Annual Report on Form 10-K for
the year ended December 31, 2016,
except as follows:
Recent Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This update provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on
our
consolidated financial statements.
In February 2016,
the
FASB
issued
ASU
2016-02 “Leases,” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact of this update on our consolidated financial
statements. We have identified all existing operating and financing leases and are in the process of determining the present value of existing lease assets and liabilities under the new guidance. We are also currently formalizing processes and controls to identify, classify and measure new leases in accordance with ASU 2016-02. The impact of ASU 2016-02 on our consolidated financial statements is currently
being evaluated
.
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers.”
ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. ASU 2015-14,
“Revenue from Contracts with Customers (Topic 606)”,
issued in August 2015, defers adoption of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. We do not expect the adoption of ASU 2014-09 to have a material effect on our consolidated financial statements.
5. Loss per Common Share
Basic loss per common share is determined based on the weighted-average number of common shares outstanding during each period. Diluted loss per common share is the same as basic loss per common share as all common share equivalents are excluded from the calculation, as their effect is anti-dilutive.
Options and warrants to p
urch
ase
approximately
1.1
million
and
1
.5
million
shares of common stock were outstanding at June 30, 2017 and 2016, respectively. In addition, unvested restricted stock units (“RSUs”), representing
approximately
0.2
millio
n
and
0
shares of com
mon stock were outstanding at
June 30, 2017
and 201
6
, respectively. These options, warrants and RSUs were excluded from the computation of diluted loss per common share as their effect would have been anti-dilutive.
6
.
Prepaid Expenses and Other
Prepaid expenses and other
consist of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Prepaid services
|
|
$
|
745
|
|
$
|
448
|
Prepaid licenses
|
|
|
300
|
|
|
-
|
Prepaid insurance
|
|
|
167
|
|
|
108
|
Prepaid inventory
|
|
|
191
|
|
|
-
|
Other prepaid items
|
|
|
251
|
|
|
70
|
Short-term deposits and other current assets
|
|
|
68
|
|
|
60
|
|
|
$
|
1,722
|
|
$
|
686
|
|
|
|
|
|
|
|
7
. Intangible Assets
Intangible assets consist of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
Patents and copyrights
|
|
$
|
19,309
|
|
$
|
13,676
|
|
$
|
5,633
|
Prepaid licensing fees
|
|
|
574
|
|
|
574
|
|
|
-
|
|
|
$
|
19,883
|
|
$
|
14,250
|
|
$
|
5,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
Patents and copyrights
|
|
$
|
19,499
|
|
$
|
13,231
|
|
$
|
6,268
|
Prepaid licensing fees
|
|
|
574
|
|
|
574
|
|
|
-
|
|
|
$
|
20,073
|
|
$
|
13,805
|
|
$
|
6,268
|
|
|
|
|
|
|
|
|
|
|
8.
Secured Contingent Payment Obligation
Our secured contingent payment obligation represents the estimated fair value of our repayment obligation to Brickell Key Investments (“BKI”) under a February 2016 funding agreement, as amended in May 2016.
Under the agreement, we received aggregate proceeds of
$1
3
million in exchange for BKI’s right to reimbursement and compensation from gross proceeds resulting from patent enforcement and other patent monetization actions.
BKI is entitled to priority payment of
100%
of proceeds
received
from all patent-related actions until such time that BKI has been repaid in full. After repayment of the funded amount, BKI is entitled to a portion of remaining proceeds up to a specified minimum return which is determined as a percentage of the funded amount and varies based on the timing of repayment. In addition, BKI is entitled to a pro rata portion of proceeds
from specified legal actions
to the extent
aggregate proceeds from
those actions
exceed the specified minimum return.
BKI
holds
a senior security interest in our assets until such time as the specified minimum return is paid, in which case, the security interest will be released except with respect to the patents and proceeds related to
specific legal actions
. The security interest is enforceable by BKI in the event that we are in default under the agreement which would occur if (i) we fail, after notice, to pay proceeds to BKI, (ii) we become insolvent or insolvency proceedings are commenced (and not subsequently discharged) with respect to us, (iii) our creditors commence actions against us (which are not subsequently discharged) that affect our material assets, (iv) we, without BKI’s consent, incur indebtedness other than immaterial ordinary course indebtedness, or (v) there is an uncured non-compliance of our obligations or misrepresentations under
the agreement. As
of June 30
, 2017
, we are in compliance with our obligations under this agreement.
We have elected to measure our secured contingent payment obligatio
n at fair value
based on probability-weighted estimated cash outflows, discounted back to present value using a discount rate determined in accordance with accepted valuation methods
.
The secured contingent payment obligation is remeasured to fair value at each reporting period with changes recorded in the consolidated statements of comprehensive loss until the contingency is resolved.
As of
June 30
, 2017
, the fair value of the obligation is estimated to
be
approximately
$
1
4
.0
millio
n
(see Note 11).
9. Share-Based Compensation
There has been no material change in the assumptions used to compute the fair value of our equity awards, nor in the method used to account for sha
re-based compensation from those stated in our Annual Report on Form 10-K for the year ended December 31, 201
6
.
The following table presents share-based compensation expense included in our
condensed
consolidated
statements of
comprehensive loss
for the
three
and six
months ended
June 30,
2017 and 2016
, respectively
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Research and development expenses
|
|
$
|
165
|
|
$
|
25
|
|
$
|
410
|
|
$
|
51
|
Selling, general and administrative expenses
|
|
|
377
|
|
|
4
|
|
|
795
|
|
|
14
|
Total share-based compensation expense
|
|
$
|
542
|
|
$
|
29
|
|
$
|
1,205
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30
, 2017
, we had
app
roximately
$
0.4
million
in u
nrecognized compensation cost related to unvested share-based compensation awards. This cost is expected to be recognized over a weighted average period of approximatel
y
one
year
.
10
. Stock Authorization and Issuance
On November 14, 2016, we filed a
shelf registration statement (“
Shelf
”)
for the offering of various securities, up to
$15
million, over a period of up to
three
years. The Shelf, which was declared effective November 30, 2016, is intended to provide flexibility for our future capital needs and may be used to fund working capital, capital expenditures, vendor purchases, and other capital needs. On December 30, 2016, we entered into an At Market Issuance Sales Agreement (“ATM”) for the sale of up to
$10
million of our common stock registered under the Shelf.
During the first quarter of 2017
, we complet
ed
the sale of approximately
4.1
million shares
of our
common stock
under the ATM
at an average price of
$2.46
per share
for net
proceeds of approximately
$9.
6
million
after deduction of broker commissions, legal fees and expenses
.
In February
2
01
7
,
we received proceeds of approxim
ately
$
0.2
million
from
the sale of
80
,
51
0
unregistered
shares of our common stock at a
price
of
$2.11
per share
to one of our directors
.
Stock for Services
During the
six
months ended
June 30
, 2017
, we issued
an aggregate of
0.3
million
shares of unregistered common stock to
two
consultant
s
in exchange for
an aggregate
of
approximately
$
0.4
million
in
prepaid retainer
s
for executive consulting and
other
advisory services.
We have no registration o
bligation with respect to these shares.
11
. Fa
ir Value Measurements
The following table
s
summarize the fair value of our assets and liabilities measured at fair value on a recurring basis as of
June 30
, 2017
and December 31, 201
6
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted money market funds
|
|
$
|
403
|
|
$
|
403
|
|
$
|
-
|
|
$
|
-
|
Available-for-sale securities
|
|
|
2,033
|
|
|
2,033
|
|
|
-
|
|
|
-
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured contingent payment
obligation
|
|
$
|
14,018
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted money market funds
|
|
$
|
911
|
|
$
|
911
|
|
$
|
-
|
|
$
|
-
|
Available-for-sale securities
|
|
|
14
|
|
|
14
|
|
|
-
|
|
|
-
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured contingent payment
obligation
|
|
$
|
14,185
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
and six
months ended
June 30
, 2017, we had
no
transfers of assets or
liabilities
between the levels of the hierarchy.
The fair value of
our
secured
contingent payment obligation was estimated using a probability-weighted income approach based on various cash flow scenarios as to the outcome of patent-related actions both in terms of timing and amount, discounted to present value using a risk-adjusted rate. The contingent payment obligation does not have a fixed duration; however our cash flow projections assume a
remaining
duration ranging from approximately
one
to
four
years. The cash outflows could potentially range from
$0
to
$32
million through
2021
and the cash flow scenarios have probabilities of
0%
to
30%
. We used a risk-adjusted discount rate of
15.
8
9%
, based on a
five
year risk-free rate of
1.93%
as adjusted by
8%
for credit risk and
6%
for litigation inherent risk.
Changes
in any of these Level 3 inputs could result in a higher or lower fair value measurement.
The following table provides a reconciliation of our secured contingent payment obligation
for the
six
months ended
June 30
, 2017
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
Secured Contingent
Payment Obligation
|
Balance at December 31, 2016
|
|
$
|
14,185
|
Repayment
|
|
|
-
|
Change in fair value
|
|
|
(167)
|
Balance at June 30, 2017
|
|
$
|
14,018
|
|
|
|
|
12
. Commitments and Contingencies
Lease Commitments
In April 2017, we entered into a new lease agreement for our Lake Mary, Florida facility
with a lease commencement date of July 1, 2017
. The lease provides for a straight-lined monthly base rental payment of approxim
ately
$1
3
,000
t
hrough November 2022 with an option for renewal.
In July 2017, we entered into a new lease agreement for warehouse and assembly space in Jacksonville, Florida. The lease provides for a straight-lined monthly base rental payment of approximately
$
2
,000
through
July
2020 with options for expansion and renewal.
In July 2017, we also amended the lease for our existing Jacksonville, Florida facility to extend the lease expiration date from January 15, 2018 to July 15, 201
8
.
The lease provides for a straight-lined monthly base rental payment of approximately
$28
,000
through
July 2018
.
Legal Proceedings
From time to time, we are subject to legal proceedings and claims which arise in the ordinary course of our business. These proceedings include patent enforcement actions initiated by us against others for the infringement of our technologies, as well as proceedings brought by others against us at the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (“PTAB”) in an attempt to invalidate certain of our patent claims. These patent-related proceedings are more fully described below.
Although there is at least a reasonable possibility of an unfavorable outcome in any one or more of these matters, we believe that any such outcome is not expected to have a material im
pact on our financial position or
results of operation
s
.
ParkerVision v. Qualcomm and HTC (Middle District of Florida)
We have a patent infringement complaint pending
in the Middle District of Florida against Qualcomm
and
Qualcomm Atheros, Inc.
(collectively “Qualcomm”)
, and HTC (HTC Corporation and HTC America, Inc
.
) (the “Qualcomm Action”) seeking unspecified damages and injunctive relief for infringement of
certain of our
patents
. Certain of the defendants have
filed counterclaims
against us for
non-infringement and invalidity for all patents in the case. A claim construction hearing was held
in
August 2015 but no ruling on claim construction has been issued by the court. In February 2016, the court granted the parties’ joint motion to stay these proceedings until resolution of the proceedings at the
International Trade Commission (“
ITC
”)
as discussed below.
In May 2017, we filed a motion to continue the stay of these proceedings pending an appeal of certain PTAB decisions with regard to our ‘940 Patent as discussed below.
Qualcomm
v. ParkerVision (PTAB)
In
August 2015, Qualcomm filed an aggregate of
ten
petitions for
Inter Partes
Review (“IPR”) with the PTAB seeking to invalidate certain claims related to
three
of the
eleven
patents originally asserted in our Qualcomm Action. In March 2016, the PTAB issued decisions denying institution of trial for
three
of the petitions, all of which relate to our U.S. patent 7,039,372 (“the ‘372 Patent”)
. The remaining petitions
, all of which relate to our U.S. patent 6,091,940 (
“
the ‘940 Patent”) and U.S. patent 7,966,012 (“the ‘012 Paten
t”) were instituted for trial by the PTAB.
In
May 2016,
the PTAB granted our motion to
disclaim the challenged claims of the ‘012 Patent and entered an adverse judgment against us with respect to those claims.
In
March 2017, the PTAB issued its decision
s
on the six outstanding IPRs,
all of which relate to the ‘940 Patent. The PTAB ruled
in our favor on
three
of the six petitions, ruled
in Qualcomm’s favor on
two
of the
six
petitions and issuing a split decision on the claims covered in the sixth petition.
As a result of the PTAB decisions, certain claims of
the
‘940 Patent which are the subject of our district court case against Qualcomm and HTC were found to be unpatentable. In May 2017, we filed our notice of appeal of these decisions with the Federal Circuit.
Qualcomm also appealed the decisions that were unfavorable to them
.
ParkerVision v. Apple and Qualcomm (ITC and Middle District of Florida)
In
December 2015, we filed a complaint with the U.S.
I
TC against Apple, Inc., LG Electronics, Inc., LG Electronics U.S.A., Inc., and LG Electronics MobileComm U.S.A., Inc. (collectively
“
LG
”
), Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung Semiconductor, Inc.
(collectively “Samsung”)
and Qualcomm alleging that these companies make, use or sell products that infringe certain of our patent claims
and requesting
that the ITC bar the defendants from continuing to import and sell infringing products in the U.S. We filed a corresponding patent infringement complaint in the Middle District of Florida against these same defendants alleging infringement of
four
of our patents. In January 2016, the ITC instituted an investigation based on our complaint.
In February 2016, the district court proceedings were stayed pending resolution of the proceedings at the ITC. In July 2016, we entered into a confidential patent license and settlement agreement with Samsung and, as a result, Samsung
wa
s removed from both the ITC and the related district court action. In
January 201
7
, we dismissed
three
of the four patents from the case in order to simplify the investigation. On March 10, 2017, the administrative law judge issued a ruling on a pre-trial motion that precluded us from presenting key evidence in our case. As a result, on March 13, 2017, we filed a motion to terminate the proceedings at the ITC.
On April 28, 2017, the ITC granted our motion to withdraw from the ITC proceedings.
Following the termination of the ITC proceedings, w
e filed a motion to lift the stay in the district court case
. This motion
was
granted
on May 25, 2017
.
On July
2
1, 2017,
we filed a
motion to dismiss
LG from the district court case
(see
ParkerVision v. LG
below).
The court
has set a claim construction hearing in th
e remaining case against Qualcomm and Apple
for mid-January 2018
.
ParkerVision v.
LG (
District of
New Jersey
)
On July 21, 2017
, we filed a
patent infringement
complaint
in the district of New Jersey against
LG
for the alleged infringement of the same patents previously asserted against LG in the middle district of Florida (see
ParkerVision v. Apple and Qualcomm
above).
We elected to dismiss the case in the middle district of Florida and re-file in New Jersey as a result of a recent Supreme Court ruling regarding proper venue. No dates have yet been established in this case.
ParkerVision v. LG Electronics (Munich, Germany)
In June 2016, we filed a complaint in Munich Regional Court against LG Electronics Deutschland GmbH, a German subsidiary of LG Electronics, Inc. (“LGE”) seeking damages and injunctive relief for the alleged infringement of
one
of our German patents. A hearing in this case was held
in
November 10, 2016. On November 14, 2016, the court concluded that certain LGE products using Qualcomm RF circuitry infringe our patent. Subject to successful completion of the co-pending nullity action in the German Federal Patent Court in Munich, the regional court will enjoin the sale and importation of these LG
E
products in Germany. The court has not yet ruled on the nullity action, which is a validity only challenge.
ParkerVision v. Apple (Munich, Germany)
In October 2016, we filed a complaint in Munich Regional Court against Apple, Inc., Apple Distribution International, and Apple Retail Germany B.V. & Co. KG (collectively “Apple”) seeking damages and injunctive relief for the alleged infringement of the same German patent as in the LGE case
(the “Apple I” case)
. In February 2017, we amended our complaint adding the infringement of a second German patent and alleging infringement by Apple devices that incorporate an Intel transceiver chip. The Munich Regional Court has bifurcated the new claims into a second case separate from the original Apple case
(the “Apple II” case)
. A hearing
was held on May 4, 2017 in the Apple I case
.
On June 22, 2017, the court deferred its ruling pending
the
validity decision from the German Federal Patent Court (see
ParkerVision v. LG Electronics
above).
The Apple II
case is scheduled for
a hearing in
November
2017.
13. Subsequent Events
On July 11, 2017,
we amended our articles of incorporation to increase the number of authorized shares of common sto
ck from
20
million to
30
million shares. This amendment was approved by our shareholders on July 11, 2017. Our
shareholders also approved an amendment to our 2011 Long-Term Incentive Equity Plan to increase the shares authorized for issuance under the plan from
1.95
million to
3
million shares.
On
August 14, 2017
,
w
e entered into an ATM
with FBR Capital Markets & Co.
for the sale of
our common stock having an aggregate offering price of
up to
$4.4
million
. Shares sold under the ATM agreement will be issued pursuant to a shelf registration statement on Form S-3 (Registration No. 333-214598) filed with the SEC in November 2016 and a prospectus supplement dated August 14, 2017. We intend to use the net proceeds from the ATM Agreement for research and development, sales and marketing activities, and for other working capital and general corporate needs
.
IT
EM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We believe that it is important to communicate our future expectations to our shareholders and to the public. This quarterly report contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our future plans, objectives, and expectations contained in this Item. When used in this quarterly report and in future filings by us with the Securities and Exchange Commission (“SEC”), the words or phrases “expects”, “will likely result”, “will continue”, “is anticipated”, “estimated” or similar expressions are intended to identify “forward-looking statements.” 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 results and those presently anticipated or projected, including the risks and uncertainties identified in our annual report on Form 10-K for the fis
cal year ended December 31, 2016
(the “Annual Report”) and in this Item 2 of Part I of this quarterly report. Examples of such risks and uncertainties include general economic and business conditions, competition, unexpected changes in technologies and technological advances, the timely development and commercial acceptance of new products and technologies, reliance on key business and sales relationships, reliance on our intellectual property, the outcome of our intellectual property litigation and the ability to obtain adequate financing in the future. 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.
Corporate Website
We webcast our earnings calls and certain events we participate in or host with members of the investment community in the investor relations section of our website. Additionally, we announce investor information, including news and commentary about our business, financial performance and related matters, SEC filings, notices of investor events, and our press and earnings releases, in the investor relations section of our website (
http://ir.parkervision.com
). Investors and others can receive notifications of new information posted in the investor relations section in real time by signing up for email alerts and/or RSS feeds. Further corporate governance information, including our governance guidelines, board committee charters, and code of conduct, is also available in the investor relations section of our website under the heading “Corporate Governance.” The content of our website is not incorporated by reference into this quarterly report or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.
Overview
We are in the business of innovating fundamental wireless technologies
and products
.
We have designed and developed a consumer and small business distributed Wi-Fi product line that is being marketed under the brand name Milo™. We also design, develop and market our proprietary radio frequency (“RF”) technologies for use in semiconductor circuits for wireless communication products, including our own internally developed products.
We have expended significant financial and other resources to research and develop our RF technologies and to obtain patent protection for those technologies in the United States and certain foreign jurisdictions. We believe certain patents protecting our proprietary technologies have been broadly infringed by others and therefore our business plan includes enforcement of our intellectual property rights through patent infringement litigation and licensing efforts.
We have a growth strategy that includes
wireless product development, manufacturing and sales and
intellectual property licensing
and
enforcement
. Our longer-term strategy is expected to include the acquisition of, or other product ventures with, companies that have businesses that are synergistic with our products and technologies, particularly in the IoT, or Internet of Things, space
. We have made significant investments in developing and protecting our technologies and products, the returns on which are dependent upon the generation of future revenues from
product sales and/or
licensing for realization.
Recent Developments
Wi-Fi Product Introduction
In June 2017, we launched a direct marketing campaign for
Milo™,
a new Wi-Fi home
and small business
networking product line
that is cost-effective and provides highly reliable distributed Wi-Fi coverage throughout a residential space, eliminating dead zones, extending Wi-Fi to new coverage areas, and creating a more even distribution of high data rates. We
expect to
begin taking orders for this product line in mid-August 2017 and anticipate initial shipments to begin in September 2017.
PV6870 Wi-Fi System on Chip
In August 2017, we introduced the PV6870, a complete single chip Wi-Fi solution intended for
sale to product manufacturers who want to incorporate Wi-Fi wireless connectivity into their products. The PV 6870 can be used in a wide range of devices and applications that require Wi
-Fi connectivity.
Nasdaq Compliance
On August 11, 2017, we received a notice from the Listing Qualifications Department of Nasdaq stating that, for the last 30 consecutive business days, the market value of the Company’s listed securities (“MVLS”) had been below the minimum of $35 million required for continued inclusion on the Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that we would be afforded 180 calendar days
, or
until February 7, 2018
,
to regain compliance. In order to regain compliance, the Company’s MVLS must remain at $35 million or more for a minimum of ten consecutive business days. The notification letter also stated that in the event we do not regain compliance within the 180 day period, our securities may be subject to delisting.
Liquidity and Capital Resources
At
June 30, 2017
, our capital resources consisted of approximately
$
2.5
m
illion in cash, cash equivalents and available-for-sale securities and approximately
$0.4
million in restricted cash equivalents. The restricted cash equivalents represents the unused portion of the re
stricted funds received from BKI
.
We used cash for operations of approximately $
7
.
9
and $
8
.9 million for the six month
periods
ended June 30, 2017 and 2016, respectively. The decrease
in cash used for operations
is primarily the result of a decrease in payments for litigation fees and expenses which are paid from restricted cash equivalents
, somewhat offset by increases in operating and inventory costs related to our new consumer product launch
.
We anticipate further increases in our operating and inventory costs in 2017 as we launch our consumer Wi-Fi product line.
Our use of cash for the
six months ended June 30
, 2017 was largely funded from the proceeds from the sale of our equity securities under an At Market Issuance Sales Agreement
(“ATM”) during the first quarter of 2017
.
We anticipate revenues and margin generated by our consumer product will begin to offset our operating costs in the third quarter of 2017, however it is unlikely that the revenues and margins generated in the short-term will be sufficient to fully fund our operations without the need for additional working capital.
Our
capital resources at
June 30, 2017 are not
sufficient to support our
working capital
requirements for
the next twelve months
which raises substantial doubt about our ability to continue as a going concern.
Our ability to meet our liquidity needs for the next twelve months is dependent upon (i) our ability to develop, market and sell existing and new products; (ii) our ability to successfully negotiate licensing agreements and/or settlements relating to the use of our technologies by others in excess of our contingent payment obligations; and/or (iii) our ability to
obtain additional debt or equity financing
. We expect that revenue generated from product sales, patent enforcement actions, and technology licenses over the next twelve months may not be sufficient to cover our
working capital requirements
.
In the event we do not generate sufficient revenues to cover our operational costs and contingent repayment obligations, we will be required to use available working capital and/or raise additional working capital through the sale of equity securities or other financing arrangements.
On August 14, 2017, we entered into an ATM for the sale of up to approximately $4.4 million of our common stock under a current shelf registration statement. We anticipate using the sale of shares under this ATM to fund our working capital requirements as we launch our new Wi-Fi product line.
We expect to continue to invest in patent prosecution and enforcement, product development, and sales, marketing, and customer support for our technologies and products. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from our technologies and/or products to offset expenses and contingent payment obligations. In the event that we do not generate sufficient revenues, we will be required to obtain additional funding through public or private debt or equity financing or contingent fee arrangements and/or reduce operating costs. Failure to generate sufficient revenues, raise additional capital through debt or equity financings or contingent fee arrangements, and/or reduce operating costs will have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business objectives.
Results of Operations for Each of the Three
and Six
Months Ended
June 30, 2017 and 2016
We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for assessing our consolidated results of operations. The non-GAAP measures we use include Adjusted Net Loss and Adjusted Net Loss per Share. These non-GAAP measures exclude the effect on net loss and net loss per share of (i) changes in fair value of our secured contingent payment obligation and (ii) share-based compensation expense. Share-based compensation is a non-cash expense item that is subject to significant fluctuation in value based on the volatility of the market price of our common stock, and the expense recognized on a GAAP basis is not necessarily indicative of the compensation realized by our executives, employees and non-employee directors. The change in fair value of our secured contingent payment obligation is subject to significant estimates and assumptions regarding future events and, similar to interest on long-term debt obligations, is a reflection of our cost of financing rather than our operating activities. Accordingly, we consider these non-GAAP measures to provide relevant supplemental information to assist investors in better understanding our operating results. These non-GAAP measures should not be considered a substitute for, or superior to measures of financial performance prepared in accordance with GAAP.
Refer to “Reconciliation of Non-GAAP Financial Measures” in this section for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures for the three and six months ended June 30, 2017 and 2016.
Revenue and Gross Margin
Our revenue
decreased
approximately $
64,000
during the
six
month period ended
June 30, 2017
when compared to the same period in 201
6
. Our gross margin
de
creased approximately $
23,000
during the
six
month period ended
June 30, 2017
when compared to the same period in 201
6
.
For the six months ended June 30, 2016, our revenue consisted primarily of design services and our cost of sales
include
d
the
cost of materials
,
labor and overhead incurred under
our
engineering
services
contracts.
We ceased offering design services in 2016 in order to focus our resources on our consumer
and small business
Wi-Fi product. We anticipate revenue and margin from shipments of our Milo-branded products beginning in the third quarter of 2017.
Research and Development Expenses
Research and development expenses consist primarily of engineering and related management and support personnel costs; fees for outside engineering design services which we use from time to time to supplement our internal resources; depreciation expense related to our assets used in product development; prototype production and materials costs, which represent the fabrication and packaging costs for prototype integrated circuits, as well as the cost of supporting components for prototype board development; software licensing and support costs, which represent the annual licensing and support maintenance for engineering design and other software tools; and rent and other overhead costs for our engineering design facility. Personnel costs include share-based compensation amounts which have been determined based on the grant date fair value of equity-based awards to our employees and then recorded to expense over the vesting period of the award.
Our research and development expenses increased approximately $0.3 million, or 47%, during the three months ended June 30, 2017 when compared to the same period in 2016. This is primarily the result of an increase in personnel and related costs, including share-based compensation expense of approximately $0.2 million.
Our research and development expenses increased approximately $1.3 million, or 93%, during the six months ended June 30, 2017 when compared to the same period in 2016.
This is primarily the result of an increase in costs related to integrated circuit design and fabrication of approximately $0.4 million, an increase in personnel costs, including share-based compensation, of approximately $0.5 million, an increase in software licensing and support costs of approximately $0.1 million, and an increase in outside engineering design services of approximately $0.1 million.
The increases in share-based compensation expense for the three and six month periods are the result of new awards granted to engineering executives and employees in August 2016. The increases in other personnel costs for the three and six month periods is a result of staff additions to support the new consumer product line. The increases in integrated circuit design and fabrication, software licensing and support, and engineering design services are primarily related to development of a Wi-Fi system on chip.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses consist primarily of executive, director, sales and marketing, and finance and administrative personnel costs, including share-based compensation,
and costs incurred for insurance, shareholder relations and outside legal and professional services, including litigation expenses.
Our selling, general and administrative expenses decreased by approximately $2.7 million, or 50%, during the three months ended June 30, 2017 when compared to the same period in 2016. This is primarily the result of a $3.6 million decrease in litigation related fees and expenses, partially offset by an increase in share-based compensation expense of approximately $0.4 million, and an increase in marketing and corporate consulting fees of approximately $0.4 million.
Our selling, general and administrative expenses decreased approximately $3.8 million or 38%,
during the six months ended June 30, 2017 when compared to the same period in 2016. This is the result of a decrease in litigation fees and expenses of approximately $5.0 million partially offset by an increase in share-based compensation expense of approximately $0.8 million, and an increase in marketing and corporate consulting fees of approximately $0.4 million.
The decrease in litigation related fees and expenses is primarily related to contingent fee arrangements with our litigation firms. The increases in share-based compensation expense is primarily the result of equity awards granted to directors and executives in August 2016. The increases in marketing consulting fees are related to the launch of our consumer product brand and the increases in corporate consulting fees are related to shareholder relations, patent reform and other corporate activities.
Change in Fair Value of Contingent Payment Obligation
We have elected to measure our secured contingent payment obligation at fair value which is based on significant unobservable inputs. We estimated the fair value of our secured contingent payment obligation using an income approach based on the estimated present value of projected future cash outflows using a risk-adjusted discount rate. Increases or decreases in the significant unobservable inputs could result in significant increases or decreases in fair value.
For the six months ended June 30, 2017, we recorded a decrease in the fair value of our secured contingent payment obligation of approximately $0.2 million, compared to an increase in the fair value of our secured contingent payment obligation of approximately $2.3 million for six months ended June 30, 2016. The changes in fair value are a result of changes in the estimated timing and amount of projected future cash outflows resulting from the funded actions.
Adjusted Net Loss and Adjusted Net Loss Per Share
Adjusted net loss decreased by approximately $2.9 million, or 47%, during the three months ended June 30, 2017 when compared to the same period in 2016. The decrease in adjusted net loss is primarily the result of a decrease in litigation expenses, somewhat offset by increases in marketing and corporate consulting fees. On a per share basis, our adjusted net loss per common share decreased by $0.34 per share, or 65%. This decrease is a result of the decrease in our adjusted net loss and a 52% increase in our weighted average common shares outstanding.
Adjusted net loss decreased by approximately $3.6 million, or 33%, during the six months ended June 30, 2017 when compared to the same period in 2016. The decrease in adjusted net loss is primarily the result of a decrease in litigation expenses, somewhat offset by increases in development costs and marketing and corporate consulting fees. On a per share basis, our adjusted net loss per common share decreased by $0.50 per share, or 52%. This decrease is a result of the decrease in our adjusted net loss and a 42% increase in our weighted average common shares outstanding.
Reconciliation of Non-GAAP Financial Measures
The following table presents a
reconciliation of our net loss to the non-GAAP measure of adjusted net loss for the three
and six
months ended
June 30, 2017 and 2016, respectively (in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net loss
|
|
$
|
(3,727)
|
|
$
|
(8,368)
|
|
$
|
(8,536)
|
|
$
|
(13,504)
|
Excluded items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
542
|
|
|
29
|
|
|
1,205
|
|
|
65
|
Change in fair value of contingent payment obligation
|
|
|
-
|
|
|
2,284
|
|
|
(167)
|
|
|
2,307
|
Adjusted net loss
|
|
$
|
(3,185)
|
|
$
|
(6,055)
|
|
$
|
(7,498)
|
|
$
|
(11,132)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a
reconciliation of our net loss
per common share
to the non-GAAP measure of adjusted net loss
per common share
for the three
and six
months ended
June 30, 2017 and 2016, respectively
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic and diluted net loss per common share
|
|
$
|
(0.21)
|
|
$
|
(0.72)
|
|
$
|
(0.52)
|
|
$
|
(1.17)
|
Excluded items on a per share basis
|
|
|
0.03
|
|
|
0.20
|
|
|
0.06
|
|
|
0.21
|
Adjusted net loss per common share
|
|
$
|
(0.18)
|
|
$
|
(0.52)
|
|
$
|
(0.46)
|
|
$
|
(0.96)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Transactions, Arrangements and Other Relationships
As of June 30, 2017
, we had outstanding warrants to purchase
approximately 0.4 million
shares of our common stock. The estimated grant date fair value of these warrants of
approximately
$
0.8 million
is included in shareholders’
(deficit)
equity in our
consolidated
balance sheets.
The outstanding warrants have an average exercise price of $2.21 per share and a weighted average remaining life of approximately 3 years.
Contractual Obligations
There have been no material changes in our contractual obligations as set forth in our Annual Report, except as follows:
In April 2017, we entered into a new lease agreement for our Lake Mary, Florida facility with a lease commencement date of July 1, 2017. The lease provides for a straight-lined monthly base rental payment of approximately
$
13,000 through November 2022 with an option for renewal.
In July 2017, we entered into a new lease agreement for warehouse and assembly space in Jacksonville, Florida. The lease provides for a straight-lined monthly base rental payment of approximately $2,000 through July 2020 with options for expansion and renewal.
In July 2017, we also amended the lease for our existing Jacksonville, Florida facility to extend the lease expiration date from January 15, 2018 to July 15, 2018. The lease provides for a straight-lined monthly base rental payment of approximately
$28,000
through July 2018.
Critical Accounting Policies
There have been no
changes in
critical
accounting policies from those stated in
our
Annual Report
.