NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 and 2017
1.
SIGNIFICANT ACCOUNTING POLICIES
ParkerVision, Inc. and its wholly-owned German subsidiary, ParkerVision GmbH (collectively “ParkerVision”, “we” or the “Company”) is
in the business of innovating fundamental wireless hardware and software technologies and products. We
have designed and developed
proprietary radio frequency (“
RF
”) technologies for use in semiconductor circuits for wireless communication products. 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 also designed and developed a consumer distributed WiFi product line that is being marketed under the brand name Milo
®
.
We restructured our operations during the third quarter of 2018 in order to reduce operating expenses in light of our limited capital resources.
As a result, o
ur primary business is to support and defend the investments we have made in developing and protecting our technologies by focusing on our patent enforcement program.
We have determined that our business currently operates under a single
operating
and
reportable
segment
.
Basis of Presentation
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”)
. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
The consolidated financial statements include the accounts of ParkerVision, Inc. and our wholly-owned German subsidiary, ParkerVision GmbH
,
after elimination of all intercompany transactions and accounts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
GAAP
requires us 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 us include projected future cash flows and risk-adjusted discount rates for estimating the fair value of our secured contingent payment obligation, the volatility and estimated 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, the amortization periods for intangible and long-lived assets, and the valuation allowance for deferred taxes. Actual results could differ from the estimates made. We periodically evaluate estimates used in the preparation of the financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.
Cash, Cash Equivalents, and Restricted Cash Equivalents
We consider 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.
Restricted cash equivalents represent money market investments that are restricted for specific use in payment of legal fees and expenses related to certain of our patent infringement actions. The restricted money market investments have weighted average maturities of three months or less when purchased and are recorded at fair value. We have determined that the fair value of our restricted money market investments fall within Level 1 in the fair value hierarchy (see Note 8).
Inventory
Inventory is stated at the lower of actual cost, as determined under the first-in, first-out method, or estimated net realizable value. We review our inventory for estimated obsolescence or unmarketable inventory and write down inventory for the difference between cost and estimated market value based upon assumptions about future demand. Future demand is affected by market conditions, technological obsolescence, new products and strategic plans, each of which is subject to change.
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
|
Shorter of useful life or remaining life of lease
|
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 comprehensive loss. 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. We estimate the economic lives of our patents and copyrights to be
fifteen
to
twenty
years. We estimate the economic lives of other intangible assets, including licenses, based on estimated technological obsolescence, to be
two
to
five
years, which is generally shorter than the contractual lives. Management evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that may warrant revised estimates of useful lives or that may indicate impairment exists.
Secured Contingent Payment Obligation
We have accounted for our secured contingent repayment obligation as long-term debt in accordance with Accounting Standards Codification (“
ASC
”) 470-10-25, “Sales of Future Revenues or Various other Measures of Income.” Our repayment obligations are contingent upon the receipt of proceeds from patent enforcement and/or patent monetization actions. We have elected to measure our secured contingent payment obligation at its fair value in accordance with ASC 825, “Financial Instruments” based on the variable and contingent nature of the repayment provisions. We have determined that the fair value of our secured contingent payment obligation falls within Level 3 in the fair value hierarchy which involves significant estimates and assumptions including projected future patent-related proceeds and the risk-adjusted rate for discounting future cash flows (see Note 8). Actual results could differ from the estimates made. Changes in fair value, including the component related to imputed interest, are included in the accompanying consolidated statements of comprehensive loss under the heading “Change in fair value of contingent payment obligation”.
Leases
Our facilities are leased under operating leases. For those leases that contain rent escalations or rent concessions, we record the total rent payable during the lease term on a straight-line basis over the term of the lease with the difference between the rents paid and the straight-line rent recorded as a deferred rent liability in the accompanying consolidated balance sheets.
In February 2016, the FASB established ASC 842, “Leases” by issuing ASU 2016-02 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. ASC 842 was subsequently amended by ASU 2018-01, ASU 2018-10 and ASU 2018-11 which provided practical expedients for adoption of ASC 842. 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. ASC 842 is effective for interim and annual periods beginning after December 15, 2018. A modified retrospective transition approach is required for adoption, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either the effective date or the beginning of the earliest comparative period presented in the financial statements as its date of initial application.
ASC 842 will be effective for us as of January 1, 2019, and we have elected to use the effective date as the initial application date. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and period prior to January 1, 2019. The new standard provides a number of practical expedients in transition and we expect to elect the package of practical expedients which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and treatment of initial direct costs. We expect the adoption of this new standard
to result in the recognition of operating lease right-to-use assets and operating lease liabilities of approximately
$0.56
million and
$0.61
million, respectively, primarily related to our facilities leases
. In addition, adoption of the new standard will result in significant new disclosures about our leasing activities.
Revenue Recognition
As of January 1, 2018, we adopted ASC 606, “Revenue from Contracts with Customers” which 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. The adoption of ASC 606 had no material effect on our consolidated financial statements
.
We derive revenue from licensing of our intellectual property, settlements from patent infringement disputes and sales of products. The timing of revenue recognition and the amount of revenue recognized depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations. In general, we recognize revenue when
the performance obligation
s
to our
customers have
been met
.
For the sale of products,
the performance obligation
is generally met at the time product is delivered to the customer. Estimated product returns
are deducted from revenue and recorded as a liability.
Revenue from the sale of our products includes shipping and handling charged to the customer. Product revenue is recorded net of sales tax collected from customers, discounts, and actual and estimated future returns.
The consideration received from patent license and settlement agreements is allocated to the various elements of the arrangement to the extent the revenue recognition differs between the elements of the arrangement. Elements related to past and future royalties as well as elements related to settlement will be recorded as revenue in our consolidated statements of comprehensive loss when
our performance obligations related to each element have been met
.
Shipping and Handling Costs
Shipping and handling costs related to product sales for the years ended December 31, 2018 and 2017 were approximately
$12,000
and
$5,000
, respectively. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive loss.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses of approximately
$0.7
million and
$0.4
mill
i
on
for the years ended December 31, 2018 and 2017, respectively, are included in selling, general, and administrative expenses in the accompanying consolidated statements of comprehensive loss.
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, an allocated portion of facilities costs, maintenance costs for software development tools, and depreciation.
Accounting for Share-Based Compensation
We have various share-based compensation programs which provide for equity awards including stock options, restricted stock units (“
RSUs
”) and restricted stock awards (“
RSAs
”).
We calculate the fair value of employee share-based equity awards on the date of grant and recognize the calculated fair value as compensation expense over the requisite service periods of the related awards. We estimate the fair value of stock option awards using the Black-Scholes option valuation model. This valuation model requires the use of highly subjective assumptions and estimates including how long employees will retain their stock options before exercising them and the volatility of our common stock price over the expected life of the equity award. Such estimates, and the basis for our conclusions regarding such estimates, are outlined in detail in Note 12. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. We account for forfeitures of share-based awards as they occur.
As of January 1, 2018, we adopted 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 adoption of this guidance did not have a material effect on our consolidated financial statements.
Income Taxes
The provision for income taxes is based on loss before taxes as reported in the accompanying consolidated statements of comprehensive loss. 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 basis 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. Our deferred tax assets exclude unrecognized tax benefits which do not meet a
more-likely-than-not threshold for financial statement recognition for tax positions taken or expected to be taken in a tax return.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “
Tax Act
”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease to
21%
effective for tax years beginning after December 31, 2017.
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 number of shares underlying outstanding options, warrants, unvested RSUS and convertible notes at December 31, 2018 and 2017 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Options outstanding
|
|
1,228
|
|
|
1,007
|
Warrants outstanding
|
|
13,279
|
|
|
420
|
Unvested RSUs
|
|
14
|
|
|
521
|
Shares underlying convertible notes
|
|
2,746
|
|
|
-
|
|
|
17,267
|
|
|
1,948
|
|
|
|
|
|
|
These
potential shares were excluded from the computation of diluted loss per share as their effect would have been anti-dilutive.
2.
LIQUIDITY AND GOING CONCERN
The accompanying consolidated financial statements as of and for the year ended December 31, 2018 were prepared assuming we will continue as a going concern, which contemplates that we will continue in operation and will be able to realize our assets and settle our liabilities and commitments in the normal course of business for a period of at least one year from the issuance date of these financial statements. These consolidated financial 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 sale
s
of our equity
and equity-linked
securities and our contingent funding arrangements with third-parties to fund our operations, including our litigation costs. For the year ended December 31, 2018, we incurred a net loss of approximately
$2
0
.
9
million and negative cash flows from operations of approximately
$10.3
million. At December 31, 2018, we had a working capital deficit of approximately
$2.
1
million and an accumulated deficit of approximately
$3
92
.
3
million. These circumstances raise substantial doubt about our ability to continue to operate as a going concern for a period of one year after the issuance date of these consolidated financial statements.
At December 31, 2018, we had cash and cash equivalents of approximately
$1.5
million.
In addition, during the first quarter of 2019, we received net proceeds of approximately
$1.3
million from the issuance of additional convertible debt securities.
In August 2018, we implemented cost reduction measures and ceased ongoing chip development activities and significantly curtailed our spending for sales and marketing of our WiFi product line in order to focus our limited resources on our patent enforcement program. We expect to sell or otherwise exit the Milo product operations the
second quarter
of 2019 and intend to focus our resources solely on licensing and enforcement of our wireless technologies. However, although we may receive proceeds from our patent enforcement actions in 2019, the timing and amount of such proceeds, if any, are difficult to predict and there can be no assurance we will receive any proceeds from these enforcement actions. In addition, we have approximately
$2
.
4
million in debt obligations due to be repaid in 2019.
Our ability to m
eet our liquidity needs for the
twelve months after the issuance date of these financial statements is dependent upon one or more of (i) 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 to legal counsel; and/or (ii) our ability to raise additional capital from the sale of equity securities or other financing arrangements. We anticipate that we will continue to invest in patent protection and licensing and enforcement of our wireless technologies. We expect that revenue generated from patent enforcement actions, and technology licenses over the twelve months after the issuance date of these financial statements, if any, after deduction of payment obligations to Brickell and legal counsel, may not be sufficient to cover our operating expenses. In the event we do not generate revenues, or other patent-asset proceeds, sufficient to cover our operational costs and contingent repayment obligation, we will be required to raise additional working capital through the sale of equity securities or other financing arrangements.
The long-term continuation of our business plan is dependent upon our ability to secure sufficient financing to support our business, and our ability to generate revenues and/or patent-related proceeds sufficient to offset expenses and meet our contingent payment obligation and other long-term debt repayment obligations. Failure to generate sufficient revenues, raise additional capital through debt or equity financings, and/or reduce operating costs could have a material adverse effect on our ability to meet our
short and
long-term liquidity needs and achieve our intended long-term business objectives.
3.
INVENTORIES
Inventories consisted of the following at December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Raw materials
|
$
|
139
|
|
$
|
573
|
Work-in-process
|
|
-
|
|
|
-
|
Finished goods
|
|
941
|
|
|
452
|
|
|
1,080
|
|
|
1,025
|
Inventory reserves
|
|
(982)
|
|
|
-
|
|
|
98
|
|
|
1,025
|
|
|
|
|
|
|
During the years ended December 31, 2018 and 2017, we recognized impairment charges to reduce our excess and obsolete inventories to their net realizable values. The following table provides a reconciliation of our inventory reserves for the years ended December 31, 2018 and 2017, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Inventory reserves at beginning of year
|
|
$
|
-
|
|
$
|
-
|
Impairment charges
|
|
|
1,134
|
|
|
125
|
Write down of impaired inventories
|
|
|
(152)
|
|
|
(125)
|
Inventory reserves at end of year
|
|
$
|
982
|
|
$
|
-
|
|
|
|
|
|
|
|
4.
PREPAID EXPENSES
Prepaid expenses consisted of the following at December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Prepaid services
|
$
|
252
|
|
$
|
253
|
Prepaid bonds for German statutory costs
|
|
199
|
|
|
62
|
Prepaid licenses, software tools and support
|
|
51
|
|
|
404
|
Prepaid inventory and production tooling
|
|
-
|
|
|
121
|
Prepaid advertising
|
|
-
|
|
|
75
|
Prepaid insurance
|
|
19
|
|
|
54
|
Other prepaid expenses
|
|
17
|
|
|
33
|
|
$
|
538
|
|
$
|
1,002
|
|
|
|
|
|
|
In 2018, we recorded impairment charges of approximately
$0.4
million related to prepaid licenses and production tooling as a result of the restructuring of our operations. These charges are included in “Restructuring expenses” in the accompanying statements of comprehensive loss (see Note 13).
5.
PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of the following at December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Equipment and software, including equipment purchased under capital leases of
$17
and
$297
at December 31, 2018 and 2017, respectively
|
$
|
1,555
|
|
$
|
6,556
|
Leasehold improvements
|
|
786
|
|
|
786
|
Furniture and fixtures
|
|
182
|
|
|
185
|
|
|
2,523
|
|
|
7,527
|
Less accumulated depreciation, including accumulated depreciation for equipment purchased under capital leases of
$13
and
$206
at December 31, 2018 and 2017, respectively
|
|
(2,394)
|
|
|
(7,151)
|
|
$
|
129
|
|
$
|
376
|
|
|
|
|
|
|
Depreciation expense related to property and equipment was approximately
$0.1
3
million
and
$0.15
million
in 2018 and 2017
, respectively
. Depreciation expense includes depreciation related to capital leases of approximately
$0.0
0
2
million
and
$0.05
for the periods ended December 31, 2018 and 2017, respectively.
Our capital leases have original terms of
one
to
three
years. The principal payments for these capital leases are reflected as cash outflows from financing activities in the accompanying consolidated statements of cash flows.
Future minimum lease payments under our capital leases that have initial terms in excess of
one
year are included in “Contractual Obligations” in Note 10.
In connection with the closure of our Lake Mary facility in 2018, we reclassified equipment with a net book value of approximately
$0.
0
7
million to assets held for sale. We have contracted with a third party for the consignment sale of these assets and anticipate completion of the sale within
12
months. For the year ended December 31, 2018, we recognized a gain on the sale of assets held for sale of approximately
$0.0
1
million which is included in selling, general and administrative expenses in the accompanying statement
s
of comprehensive loss.
6.
INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Patents and copyrights
|
$
|
18,350
|
|
$
|
19,324
|
Less accumulated amortization
|
|
(14,448)
|
|
|
(14,248)
|
|
$
|
3,902
|
|
$
|
5,076
|
|
|
|
|
|
|
Amortization expense for each of the years ended December 31, 2018 and 2017 was approximately
$1.1
million and
$1.2
million, respectively. For
each of
the years ended December 31, 2018 and 2017, we recorded loss
es
on the disposal of intangible assets of
approximately
$0.1
million.
Future estimated amortization expense for intangible assets that have remaining unamortized amounts as of December 31, 2018 is as follows (in thousands):
|
|
|
|
|
|
2019
|
$
|
713
|
2020
|
|
520
|
2021
|
|
448
|
2022
|
|
406
|
2023
|
|
359
|
2024 and thereafter
|
|
1,456
|
Total
|
$
|
3,902
|
|
|
|
7.
DEBT
Notes Payable
Notes payable at December 31, 2018 and 2017, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
2018
|
|
2017
|
Note payable to a related party
|
$
|
836
|
|
$
|
825
|
Secured note payable
|
|
2,400
|
|
|
-
|
Total notes payable
|
|
3,236
|
|
|
825
|
Less current maturities
|
|
2,437
|
|
|
294
|
Long-term note payable
|
$
|
799
|
|
$
|
531
|
|
|
|
|
|
|
Note Payable to a Related Party
The note payable to a related party represents an unsecured promissory note to Sterne, Kessler, Goldstein, & Fox, PLLC (“
SKGF
”), a related party (see Note 14) upon conversion of outstanding and unpaid legal fees of
$0.8
million in February 2016. The note ha
d
an interest rate of
8%
per annum with an original balloon maturity of the outstanding principal balance
due
on December 31, 2017. In January 2018, we amended the note, retroactive to December 31, 2017 to allow for interest only payments through March 2018 and principal and interest payments through
March 31, 2020
. In August 2018, we further amended the note, retroactive to April 30, 2018 to defer principal and interest payments from May 1, 2018 through September 30, 2018.
We determined that the amendments to the note constitute modifications of the debt which are accounted for on a prospective basis.
The note, as
modif
i
ed
, provided for payments of principal and interest of approximately
$48,500
per month commencing October 31, 2018 through March 31, 2020. Failure to comply with the payment terms of this note constitutes an event of default which, if uncured, will result in the entire unpaid principal balance of the note and any unpaid, accrued interest to become immediately due and payable.
In addition, the note provides for an increase in the interest rate to
12%
per annum in the event of a default.
As of December 31, 2018, we
were
in default on the payment terms of the SKGF
n
ote.
In March 2019,
we amended the note to provide for a waiver of past payment defaults, a decrease in the interest rate from
8%
per annum to
4%
per annum, an extension of the maturity date of the note from
March 2020
to
April 2022
, and a modification of payment terms under the note (see Note 16).
Secured Note Payable
The secured note payable represents a non-interest bearing promissory note payable to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“
Mintz
”) in settlement of outstanding and unpaid legal fees and costs associated with our patent enforcement programs. We paid Mintz an initial installment of
$0.1
million upon execution of the note and the remaining balance is payable in monthly installments of
$0.2
million commencing November 1, 2018 and continuing until the entire unpaid principal balance is paid. We pledged as security for the note
25
United States (“
U.S.
”)
patents and
6
correlating foreign patents that were simultaneously released by Brickell
Key Investments LP (“
Brickell
”)
. The Mintz note accelerates and becomes immediately due and payable in the case of standard events of default or in the event of a sale or other transfer of substantially all of our assets or a transfer of more than
50%
of our capital stock in one or a series of transactions or through a merger or other similar transaction. In an event of default, the Mintz note will accrue interest at a rate of
12%
per annum on any outstanding balance until such time that the note is paid in full.
As of December 31, 2018, we were in default on the payment terms of the Mintz note
. The payment default was cured in January 2019.
On April 1,
2019,
Mintz
waived past and future payment defaults under the note through at least May 31, 2019
, provided that no other event of default occurs
.
Mintz
also waived acceleration of unpaid principal and interest as well as
an increase in the interest rate to the default rate of
12%
.
At December 31, 2018, the aggregate maturities of our notes payable
, after consideration of the effect of the March 2019 amendment of the SKGF note,
are as follows (in thousands):
|
|
|
|
|
|
2019
|
$
|
2,437
|
2020
|
|
90
|
2021
|
|
93
|
2022
|
|
616
|
Total
|
$
|
3,236
|
|
|
|
The estimated fair value of our notes payable at December 31, 2018 is approximately
$3.0
million based on a risk-adjusted discount rate.
Convertible Notes
In September 2018, we sold two tranches of
five
-year promissory notes for aggregate proceeds of approximately
$1.3
million, including
$0.4
million sold to related parties (see Note 14). The notes are convertible, at the holders’ option, into shares of our common stock at fixed conversion prices.
We must repay, in cash, the principal balance of any outstanding, unconverted notes on the five-year anniversary of the issuance date. Accordingly, we have recognized the convertible notes as debt in our consolidated financial statements.
The fixed conversion prices of the notes were below market value of our common stock on the closing date resulting in a beneficial conversion feature with a value of approximately
$0.4
million. The beneficial conversion feature is recorded as a discount on the convertible notes with a corresponding increase to additional paid in capital.
Convertible notes payable at December 31, 2018 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fixed Conversion Rate
|
|
Effective Interest Rate
|
|
Maturity Date
|
|
2018
|
Convertible notes dated September 10, 2018
|
|
$0.40
|
|
8.3%
|
|
September 7, 2023
|
|
$
|
800
|
Convertible notes dated September 19, 2018
|
|
$0.57
|
|
8.3%
|
|
September 19, 2023
|
|
|
425
|
Total principal balance
|
|
|
|
|
|
|
|
|
1,225
|
Less unamortized discount
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
$
|
837
|
|
|
|
|
|
|
|
|
|
|
The notes bear interest at a stated rate of
8%
per annum. Interest is payable quarterly and we may elect to pay interest in either cash, shares of our common stock, or a combination thereof, subject to certain equity conditions. For the year ended December 31, 2018, we recognized interest expense of approximately
$0.05
million, including approximately
$0.02
related to amortization of the discount and
$0.03
million related to the contractual interest which we elected to pay in shares of our common stock. The unamortized discount on the convertible notes will be amortized over a remaining period of approximately
4.75
years.
At the holders’ option, the convertible notes outstanding at December 31, 2018 could be converted into an aggregate of approximately
2.7
million shares of our common stock based on the fixed conversion prices.
For the year ended December 31, 2018, an aggregate of
$0.1
million in outstanding principal was converted by the holders into
0.25
million shares of our common stock at a fixed conversion price of
$0.40
.
We have the option to prepay the notes any time following the one-year anniversary of the issuance of the notes, subject to a premium on the outstanding principal prepayment amount of
25%
prior to the two-year
anniversary
of the note issuance date,
20%
prior to the three-year anniversary of the note issuance date,
15%
prior to the four-year anniversary of the note issuance date, or
10%
thereafter. The notes provide for events of default that include failure to pay principal or interest when due, breach of any of the representations, warranties, covenants or agreements made by us, events of liquidation or bankruptcy, and a change in control. In the event of default, the interest rate increases to
12%
per annum and the outstanding principal balance of the notes plus all accrued interest due may be declared immediately payable by the holders of a majority of the then outstanding principal balance of the notes.
Secured Contingent Payment Obligation
The following table provides a reconciliation of our secured contingent payment obligation measured at estimated fair market value for the year ended December 31, 2018 and 2017, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
Secured contingent payment obligation, beginning of year
|
|
$
|
15,896
|
|
$
|
14,185
|
Proceeds from contingent payment obligation
|
|
|
4,000
|
|
|
1,000
|
Repayment
|
|
|
-
|
|
|
-
|
Change in fair value
|
|
|
5,661
|
|
|
711
|
Secured contingent payment obligation, end of year
|
|
$
|
25,557
|
|
$
|
15,896
|
|
|
|
|
|
|
|
Our secured contingent payment obligation represents the estimated fair value of our repayment obligation to Brickell under a February 2016 funding agreement, as amended from time to time (the “
CPIA
”). To date, we have received aggregate proceeds of
$18
million, including
$4.0
million and
$1.0
million received in 2018 and 2017, respectively, in exchange for Brickell’s right to reimbursement and compensation from gross proceeds resulting from patent enforcement and other patent monetization actions. To date, we have repaid an aggregate of
$3.3
million under the CPIA from patent license and settlement proceeds.
In 2018, we received aggregate proceeds of
$4.0
million from Brickell under the CPIA including
proceeds of
$2.5
million received in December 2018.
In connection with the additional proceeds received
in December 2018
, we issued Brickell a warrant to purchase up to
5.0
million shares of our common stock at an exercise price of
$0.16
per share (see Note 11).
As the estimated fair value of the payment obligation to Brickell
resulting from this additional funding
exceeded the
$2.5
million in
proceeds received,
no
value was assigned to the warrants.
The excess of fair value of over the proceeds received of approximately
$0.8
million was included in the change in fair value of our contingent payment obligation in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2018.
Brickell is entitled to priority payment of
100%
of proceeds received from all patent-related actions until such time that Brickell has been repaid in full. After repayment of the funded amount, Brickell 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, Brickell 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.
Brickell holds a senior security interest in the majority of 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 Brickell in the event that we are in default under the agreement which would occur if (i) we fail, after notice, to pay proceeds to Brickell, (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 Brickell’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 December 31, 2018, we are in compliance with our obligations under this agreement.
In addition, in the event of a change in control of the Company, Brickell has the right to be paid its return as defined under the CPIA based on the transaction price for the change in control event.
We have elected to measure our secured contingent payment obligation 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 (see Note 8). 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.
8.
FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measures” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy are as follows:
|
·
|
|
Level 1: Quoted prices for identical assets or liabilities in active markets which we can access
|
|
·
|
|
Level 2: Observable inputs other than those described in Level 1
|
|
·
|
|
Level 3: Unobservable inputs
|
The following table summarizes financial assets and financial liabilities carried at fair value and measured on a recurring basis as of December 31, 2018 and 2017, segregated by classification within the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Secured contingent payment
obligation
|
$
|
25,557
|
|
$
|
-
|
|
$
|
-
|
|
$
|
25,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
26
|
|
$
|
26
|
|
$
|
-
|
|
$
|
-
|
Restricted cash equivalents
|
|
1,000
|
|
|
1,000
|
|
|
-
|
|
|
-
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Secured contingent payment
obligation
|
|
15,896
|
|
|
-
|
|
|
-
|
|
|
15,896
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31, 2018
and 2017, respectively, we had
no
transfers of assets or liabilities between the levels of the hierarchy. We determine the fair value of our available-for-sale securities and restricted cash equivalents using a market approach based on quoted prices in active markets (Level 1 inputs).
In 2016, we recognized a secured contingent payment obligation upon our receipt of proceeds from Brickell for funding of
certain patent-related actions
. The fair value of the contingent payment obligation at December 31, 2018 and 2017 was estimated at
$25.6
million and
$15.9
million
, respectively. These values were calculated 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 duration through 2021. The assumed cash outflows range from
$0
to
$46
million and the cash flow scenarios have probabilities of
0%
to
35%
. We used a risk-adjusted discount rate of approximately
16.5%
, based on a
two
year risk-free rate of approximately
2.5%
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. For example, a decrease in the risk-adjusted discount rate from
16.5%
to
8%
would result in an increase in the fair value of approximately
$4.6
million. Refer to Note 7 for a reconciliation of our secured
contingent payment obligation measured at estimated fair value for the years ended December 31, 2018 and 2017.
9.
INCOME TAXES AND TAX STATUS
Our net losses before income taxes for the years ended December 31, 2018 and 2017 are from domestic operations as well as losses from our wholly-owned German subsidiary. We elected to treat our German subsidiary as a disregarded entity for purposes of income taxes and accordingly, the losses from our German subsidiary has been included in our operating results.
No
current or deferred tax provision or benefit was recorded in
2018
or 2017 as a result of current losses and fully deferred tax valuation allowances for all periods. We have recorded a valuation allowance to state our deferred tax assets at their estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code that includes a reduction to the U.S. federal corporate statutory tax rate to
21%
effective in 2018.
The Securities and Exchange Commission (“
SEC
”) staff issued Staff Accounting Bulletin 118 which provides guidance on accounting for the impact of the Tax Act and states that a reasonable estimate of the Tax Act’s effects on our deferred tax balances should be included in our consolidated financial statements.
As of December 31, 2017, our accounting for the income tax effects of the Tax Act
was
completed
and there were
no
adjustments related to the Tax Act in our reporting period ended December 31, 2018
. The federal corp
orate tax rate reduction created
a reduction to our deferred tax assets and liabilities with a corresponding reduction to our valuation allowance.
A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of
21%
and
34
% for the years ended December 31, 2018 and 2017, respectively are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Tax benefit at statutory rate
|
$
|
(4,382)
|
|
$
|
(6,548)
|
State tax benefit
|
|
(897)
|
|
|
(674)
|
Impact of the Tax Act
|
|
-
|
|
|
41,646
|
Increase (decrease) in valuation allowance
|
|
5,304
|
|
|
(34,346)
|
Research and development credit
|
|
(51)
|
|
|
(129)
|
Other
|
|
26
|
|
|
51
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Our deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax bases of our assets and liabilities at December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Gross deferred tax assets:
|
|
|
|
|
|
Net operating loss carry-forward
|
$
|
84,192
|
|
$
|
82,168
|
Research and development credit
|
|
7,879
|
|
|
8,051
|
Stock compensation
|
|
1,027
|
|
|
1,248
|
Patents and other
|
|
1,495
|
|
|
1,427
|
Contingent payment obligation
|
|
2,842
|
|
|
1,409
|
Inventories
|
|
249
|
|
|
-
|
Fixed assets
|
|
25
|
|
|
25
|
Accrued liabilities
|
|
146
|
|
|
49
|
Deferred rent and lease liabilities
|
|
46
|
|
|
20
|
Charitable contributions
|
|
5
|
|
|
7
|
Deferred revenue
|
|
-
|
|
|
5
|
Capital loss carry-forward
|
|
3
|
|
|
3
|
Warranty reserve
|
|
4
|
|
|
2
|
Bad debt expense
|
|
-
|
|
|
1
|
|
|
97,913
|
|
|
94,415
|
Less valuation allowance
|
|
(97,816)
|
|
|
(94,415)
|
|
|
97
|
|
|
-
|
Gross deferred tax liabilities:
|
|
|
|
|
|
Convertible debt
|
|
(97)
|
|
|
-
|
|
|
(97)
|
|
|
-
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Approximately
$0.1
million, net of tax effect, of unrecognized tax benefit related to the beneficial conversion feature of convertible debt would be recorded as an adjustment to contributed capital rather than a decrease in earnings, if recognized.
At December 31, 2018, we had cumulative
net operating loss (“
NOL
”)
carry-forwards for income tax purposes of
$336.4
million, of which
$323.5
million is subject to expiration in varying amounts from
2019
to
2036
. At December 31, 2018, we also had research and development tax credit carryforwards of
$7.9
million, which expire in varying amounts from
2019
through
2037
.
Our ability to benefit from the tax credit carry-forwards could be limited under certain provisions of the Internal Revenue Code if
there are
ownership changes
of
more than 50%, as defined by Section 382 of the Internal Revenue Code of 1986 (“
Section 382
”). Under
Section 382, an ownership change may limit the amount of NOL, capital loss and R&D credit carry-forwards that can be used annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. We conduct a study annually of our ownership changes. Based on the results of our studies, we have determined that we do not have any ownership changes on or prior to December 31, 2018 which would result in limitations of our NOL, capital loss or R&D credit carry-forwards under Section 382.
Uncertain Tax Positions
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We have identified our Federal and Florida tax returns as our only major jurisdictions, as defined. The periods subject to examination for those returns are the
1998
through
2018
tax years. The following table provides a reconciliation of our unrecognized tax benefits due to uncertain tax positions for the years ended December 31, 2018 and 2017, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Unrecognized tax benefits – beginning of year
|
$
|
927
|
|
$
|
1,370
|
Impact of the Tax Act
|
|
-
|
|
|
(443)
|
Unrecognized tax benefits – end of year
|
$
|
927
|
|
$
|
927
|
|
|
|
|
|
|
Future changes in the unrecognized tax benefit will have no impact on the effective tax rate so long as we maintain a full valuation allowance.
Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of our income tax expense. We
do not
have any accrued interest or penalties associated with any unrecognized tax benefits. For the years ended December 31, 2018 and 2017, we
did not
incur any income tax-related interest income, expense or penalties.
10.
COMMITMENTS AND CONTINGENCIES
Lease Commitments
The following table presents a summary of our facilities under non-cancelable lease agreements at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Lease Start Date
|
|
|
Lease End Date
|
|
|
Renewal options remaining
|
|
Straight line monthly rental payment (in thousands)
|
Corporate office, Jacksonville, Florida
|
|
7/15/2018
|
|
|
7/31/2019
|
|
|
none
|
|
$
|
31
|
Wireless design facility, Lake Mary, Florida
|
|
7/1/2017
|
|
|
11/30/2022
|
|
|
2 options to extend for 36 months each
|
|
$
|
13
|
Warehouse and production facility, Jacksonville, Florida
|
|
7/1/2017
|
|
|
7/31/2020
|
|
|
none
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent is amortized to rent expense over the respective lease terms. In addition to sales tax payable on base rental
amounts
, certain leases obligate us to pay pro-rated annual operating expenses for the properties. Rent expense for
our facilities
for the years ended December 31, 2018 and 2017 was
approximately
$0.5
million and
$0.
6
million
, respectively
.
Contractual Obligations
Future minimum lease payments under all non-cancelable operating leases and capital leases that have initial terms in excess of one year as of December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual obligations:
|
2019
|
|
2020
|
|
2021 and thereafter
|
|
Total
|
Operating leases
|
$
|
372
|
|
$
|
191
|
|
$
|
345
|
|
$
|
908
|
Capital leases
|
$
|
2
|
|
$
|
1
|
|
$
|
-
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Our contractual obligations as of December 31, 2018 for operating leases include approximately
$0.
7
million related to our Lake Mary, Florida facility. We ceased use of this facility in 2018 and at December 31, 2018, we have recorded a lease liability of
$0.2
million which reflects the estimated net present value of our Lake Mary lease obligation, net of estimated future sublease rental income.
Legal Proceedings
We are a party to a number of patent enforcement actions initiated by us against others for the infringement of our technologies, as well as counter claims and proceedings brought by others against us in an attempt to invalidate certain of our patent claims. These patent-related proceedings are more fully described below.
We have several patent enforcement actions in Germany which has a “loser pay” system whereby the non-prevailing party is responsible for statutory attorney fees and costs. If we determine it is probable that we will have an unfavorable outcome in any of our German cases, we record an estimate of expenses for the probable loss. We received an unfavorable decision from Germany in October 2018, as more fully described below (see
Qualcomm v. ParkerVision – Federal Patent Court in Germany
). As a result, for the year ended December 31, 2018, we have recorded an aggregate of
$0.1
million in expenses for statutory fees and costs estimated in that case. There is at least a reasonable possibility of an unfavorable outcome in any one or more of our legal proceedings that could result in expenses in the aggregate that could have a material unfavorable impact on our results of operations as more fully discussed below.
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, the stay of these proceedings was continued pending an appeal of certain
Patent Trial and Appeal Board (“
PTAB
”)
decisions with regard to our U.S. Patent 6,091,940 (“
the ‘940 Patent
”). In September 2018, the Federal Circuit issued its decision in the appeal of the ‘940 Patent as discussed in
Qualcomm v. ParkerVision – PTAB
below. Accordingly, in January 2019, the court lifted the stay. A trial schedule has not yet been set for this case.
Qualcomm v. ParkerVision -PTAB
In August 2015, Qualcomm filed an aggregate of
ten
petitions for
Inter Partes
Review (“
IPR
”) with the P
TAB
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 the ‘940 Patent and U.S. patent 7,966,012 (“
the ‘012 Patent
”) 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 decisions 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 issued a split decision on the claims covered in the
sixth
petition. As a result of the PTAB decisions, certain claims of the ‘940 Patent were found to be un-patentable and certain claims were found not to be un-patentable. In May 2017, we filed
a
notice of appeal of these decisions with the United States Court of Appeals for the Federal Circuit (“
CAFC
”). Qualcomm also appealed the decisions that were unfavorable to them.
On
September 13, 2018
,
the CAFC
upheld
the PTAB ruling with regard to the ‘940 Patent. As a result of the ruling, we prevailed with regard to the method claims of the ‘940 Patent and Qualcomm prevailed on the apparatus claims. This matter is now closed although the patents at issue in this proceeding are the subject of the Qualcomm
A
ction discussed above.
ParkerVision v. Apple and Qualcomm (ITC)
In December 2015, we filed a complaint with the U.S. ITC 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. In January 2016, the ITC instituted an investigation based on our complaint. In July 2016, we entered into a confidential patent license and settlement agreement with Samsung and, as a result, Samsung was removed from the ITC action. In January 2017, 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.
ParkerVision v. Apple and Qualcomm (Middle District of Florida)
In December 2015, we filed a patent infringement complaint in the Middle District of Florida against Apple, LG, Samsung and Qualcomm alleging infringement of
four
of our patents. In February 2016, the district court proceedings were stayed pending resolution of the corresponding case filed at the ITC. In July 2016, we entered into a patent license and settlement agreement with Samsung and, as a result, Samsung was dismissed from the district court action. In March 2017, we filed a motion to terminate the ITC proceedings and a corresponding motion to lift the stay in the district court case. This motion was granted in May 2017. In July 2017, we filed a motion to dismiss LG from the district court case (see
ParkerVision v. LG
below). Also in July 2017, Qualcomm filed a motion to change venue to the southern district of California and Apple filed a motion to dismiss for improper venue. In March 2018, the district court ruled against the Qualcomm and Apple motions. The parties also filed a joint motion in March 2018 to eliminate three of the four patents in the case in order to expedite proceedings leaving our U.S. patent 9,118,528 as the only remaining patent in this case. A claim construction hearing was held on August 31, 2018
,
and we are currently awaiting the court’s decision regarding claim language pertinent to this case. We anticipate that a trial date will be scheduled for this proceeding following the court’s order regarding claim construction.
ParkerVision v. LG (District of New Jersey)
In July 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. In March 2018, the court stayed this case pending a final decision in
ParkerVision v. Apple and Qualcomm
in the Middle District of Florida. As part of this stay, LG has agreed to be bound by the final
claim construction decision in that case.
ParkerVision v. LG Electronics (Munich, Germany)
In June 2016, we filed a complaint in Munich District Court against LG Electronics Deutschland GmbH, a German subsidiary of LG Electronics, Inc. (“
LGE
”) seeking damages and injunctive relief for the alleged infringement of the German part of our European patent 1 206 831 (“
the ‘831 Patent
”). A hearing in this case was held in November 2016 at which time the court concluded that certain LGE products using Qualcomm RF circuitry infringe our patent. The final decision in this case
wa
s stayed pending resolution of the corresponding nullity, or validity, action filed by Qualcomm in the German Federal Patent Court in Munich (see
Qualcomm v. ParkerVision
below). In October 2018, we received an unfavorable decision in the nullity case
for which we have filed an appeal
.
The outcome of our appeal of the nullity action will determine the outcome of this action. If our appeal is unsuccessful
, we
will
be subject to a claim for reimbursement of statutory attorney’s fees and costs in this case. We estimate a claim of approximately
$0.06
million for which we have posted a bond.
The cost of the bond is included in “
Prepaid expenses
” in the accompanying consolidated balance sheets and will be charged to expense if
a
loss becomes probable.
ParkerVision v. Apple (Munich, Germany) - the Apple I case
In October 2016, we filed a complaint in Munich District 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 ‘831 Patent (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 bifurcated the new claims into a second case (see
ParkerVision v. Apple - the Apple II
case below). A hearing was held in May 2017 in the Apple I Case. In June 2017, the court deferred its ruling pending the decision from the German Federal Patent Court in the validity action filed by Qualcomm (see
Qualcomm v. ParkerVision below
). In October 2018, we received an unfavorable decision in the nullity case
for which we have filed an appeal
. We have not posted a bond to cover the
potential
statutory costs
in this case
.
In March 2019, the district court declared the complaint withdrawn, a decision we are able to appeal provided we post a bond for approximately
$0.1
million by April 2019.
If we fail to post a bond or our appeal of the nullity action is unsuccessful, we will be subject to a claim for reimbursement of statutory attorney’s fees and costs of approximately
$0.1
million.
The accompanying consolidated financial statements do not include any accrual for a loss contingency in this case as the loss is not considered probable as of December 31, 2018.
Qualcomm v. ParkerVision -Federal Patent Court in Germany (as appealed to the German Supreme Court)
In August 2016, Qualcomm filed a validity action in Federal Patent Court in Germany against the ’831 Patent. The outcome of this validity action impacts our German patent infringement cases against LGE and Apple as discussed above.
On October 17, 2018, following an oral hearing,
the court ruled that the ‘831 Patent was invalid. Based on the October 2018 decision from the federal court, we have
accrued
a
contingent
loss of
$0.1
million for the estimated statutory fees and costs in this case. In January 2019, we appealed this decision to the German Supreme Court. Dates have not yet been established for the appeal. If we ultimately do not prevail in this case, in addition to the
contingent
loss r
ecorded at December 31, 2018
, we will be subject to a claim for reimbursement of statutory attorney fees and costs for the appeal which we estimate to be approximately
$0.1
million. In addition, we may be subject to claims for reimbursement of statutory attorney fees and costs for the LG and Apple I cases that are stayed pending this validity decision. We estimate these possible additional costs to be approximately
$0.2
million, a portion of which is covered by a
$0.0
6
million bond we have posted in the LG case.
ParkerVision v. Apple (Munich, Germany)-
the Apple II case
The Apple II case seeks damages and injunctive relief for the alleged infringement of the German part of our European patent 1 135 853 (“
the ‘853 Patent
”). A
preliminary
hearing was held in November 2017. Subsequent to the hearing, the court requested that we supplement certain elements of the infringement claims against Apple devices. In May 2018, we filed our supplemental briefs as requested by the court. In October 2018, we also filed a supplemental expe
rt report. The court appointed an expert in this case and a hearing was held i
n March 2019
for purposes of providing expert testimony
. The court is expected to rule in April 2019
.
We
have posted a bond of approximately
$0.
14
million which is our estimated maximum exposure in this case.
The cost of the bond is included in “
Prepaid expenses
” in the accompanying consolidated balance sheets as of December 31, 2018.
Intel v. ParkerVision
(Federal Patent Court in Germany)
In August 2017, Intel filed a nullity action in German Federal Patent Court claiming invalidity of the ‘853 Patent that is the subject of the Apple II case. If the ‘853 Patent is declared invalid, we may be subject to a claim for reimbursement of statutory attorney fees and costs in this case which we currently estimate will not exceed
$0.1
million. No dates have yet been set in this nullity action
, and the accompanying consolidated financial statements
do not
include any accrual for a loss contingency in this case as a loss is not considered probable as of December 31, 2018.
11.
STOCK AUTHORIZATION AND ISSUANCE
Preferred Stock
We have
15
million shares of preferred stock authorized for issuance at the direction of the board of directors
(the “
Board
”)
. On November 17, 2005, our
Board
designated
0.1
million shares of authorized preferred stock as the Series E Preferred Stock in conjunction with its adoption of a Shareholder Protection Rights Agreement. As of December 31, 2018, we had
no
outstanding preferred stock.
Common Stock
We have 75 million shares of common stock authorized for issuance. Our shareholders approved an amendment to our articles of incorporation in 2017 to increase the number of authorized shares of common stock from
20
million to
30
million shares.
In addition,
on June 12, 2018, our shareholders approved
an amendment to our articles of incorporation to increase the number of authorized shares of common stock from 30 million to
40
million shares
and on October 30, 2018, our shareholders approved an amendment to our articles of incorporation to increase the number of our authorized shares of common stock from 40 million to
75
million shares.
As of December 31, 2018, we have
14.5
million shares reserved for issuance under outstanding warrants, options and unvested RSUs,
0.3
million shares reserved for future issuance under shareholder approved equity compensation plans, and
6.0
million shares reserved for the payment of interest and conversion of principal under outstanding convertible notes.
Stock Issuances
The following table presents a summary of completed equity offerings for the years ended December 31, 2018 and 2017 (in thousands, except for per share amounts):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
Transaction
|
|
# of Common Shares/ Units Sold
|
|
Average Price per Share/Unit
|
|
# of Warrants Issued
(in 000’s)
|
|
Average Exercise Price per Warrant
|
|
|
Net Proceeds
(1)
|
July 2018 and September 2018
|
Offerings under PIPE Agreement
|
|
-
|
|
-
|
|
10,000
|
|
$0.38
|
|
$
|
1,901
|
March 2018
|
Director Stock Purchase
|
|
217
|
|
$0.83
|
|
-
|
|
-
|
|
$
|
180
|
March - May 2018
|
Offerings under ATM
|
|
1,359
|
|
$0.87
|
|
-
|
|
-
|
|
$
|
1,148
|
January - June 2018
|
Offerings under Equity Line Agreement
|
|
2,940
|
|
$0.70
|
|
-
|
|
-
|
|
$
|
2,047
|
October - December 2017
|
Offerings under Equity Line Agreement
|
|
773
|
|
$1.29
|
|
-
|
|
-
|
|
$
|
958
|
August - December 2017
|
Offerings under ATM
|
|
2,119
|
|
$1.50
|
|
-
|
|
-
|
|
$
|
2,970
|
February 2017
|
Director Stock Purchase
|
|
81
|
|
$2.11
|
|
-
|
|
-
|
|
$
|
170
|
January - March 2017
|
Offerings under ATM
|
|
4,072
|
|
$2.46
|
|
-
|
|
-
|
|
$
|
9,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
After deduction of applicable underwriters’ discounts, placement agent fees, and other offering costs.
|
Private Placement with Aspire Capital
In July 2018, we entered into a securities purchase agreement (the “
PIPE Agreement
”) with Aspire Capital for the sale of up to
$2.0
million of shares of our common stock (or pre-funded warrants) and warrants, in
two
tranches. Upon the initial closing, we sold to Aspire Capital (i) a pre-funded warrant to purchase up to
2.5
million shares of our common stock with an exercise price of
$
0
.01
per share (“
Pre-Funded Warrant
”) and (ii) a warrant to purchase up to
2.5
million shares of our common stock with an exercise price of
$
0
.74
per share (a “
Warrant
”), for an aggregate purchase price of approximately
$1.0
million. In addition, pursuant to the PIPE Agreement, in September 2018, we sold to Aspire Capital (i) a second Pre-Funded Warrant to purchase up to
2.5
million shares of common stock exercise price of
$0.01
per share and (ii) a second Warrant to purchase an additional
2.5
million shares of common stock at an exercise price of
$0.74
per share, for an additional aggregate purchase price of approximately
$1.0
million.
The aggregate proceeds from the sale of Pre-Funded Warrants and Warrants to Aspire Capital are
$1.9
million after deduction of legal fees and registration costs of approximately
$0.05
million.
The Warrants and Pre-Funded Warrants expire
five
years after their respective issuance date and have substantially similar other
terms
, except (i) for exercise price and (ii) that the Warrants are exercisable on the date that is six months after issuance and the Pre-Funded Warrants are immediately exercisable after issuance. The shares underlying the Pre-Funded Warrants and Warrants are registered under a registration statement that became effective in September 2018 (Registration No.333-226738).
At Market Issuance Sales Agreements
We filed a shelf registration statement on Form S-3 with the
SEC
in November 2016 (Registration No. 333-214598) for the offering of various securities, up to
$15
million, over a period of up to
three
years. On December 30, 2016, we entered into an
At Market Issuance Sales Agreement (“
ATM
”)
with FBR Capital Markets & Co. (“
FBR
”) for the sale of up to
$10
million in shares of our common stock under the shelf registration statement (the “
First ATM
”). From January through March 2017, we sold an aggregate of
4.1
million shares of our common stock at an average price of
$2.46
per share under the First ATM
for net proceeds of approximately
$9.6
million, after deduction of approximately
$0.
4
million in
FBR fees and commissions, legal fees and other offering costs
.
On August 14, 2017, we entered into a new ATM agreement with FBR for the sale of up to approximately
$4.4
million in shares of our common stock registered under the shelf registration statement (the “
Second ATM
”). From August to December 2017, we completed the sale of approximately
2.1
million shares of our common stock at an average price of
$1.50
under the Second ATM
for net proceeds of approximately
$3.0
million, after deduction of approximately
$0.2
million in FBR fees and commissions, legal fees and other offering costs. From
March to May 2018, we completed the sale of approximately
1.4
million shares of our common stock at an average price of
$0.87
per share under the Second ATM
for aggregate net proceeds of approximately
$1.1
million, after deduction of approximately
$0.1
million in FBR fees and commissions
. We had no additional amounts available under the shelf registration statement as of December 31, 2018.
Equity Line Agreement
In October 2017, we entered into a common stock purchase agreement (the “
Equity Line Agreement
”) with Aspire Capital. Under the Equity Line Agreement, Aspire Capital committed to purchase up to an aggregate of
$20
mil
lion in shares of our common stock over the
30
-month term of the Equity Line Agreement. In consideration for entering into the Equity Line Agreement, we issued to Aspire Capital approximately
0.3
million shares of our common stock as a commitment fee. We filed a registration statement to register the sale of up to
4
million shares of our common stock by Aspire Capital under
the Equity Line Agreement. The registration statement was declared effective November 27, 2017 (File No. 333-221250).
Under the Equity Line Agreement, on any trading day selected by us, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, directing Aspire Capital to purchase up to 0.15 million shares of our common stock, provided that the aggregate purchase amount for such shares does not exceed
$0.5
million and subject to the maximum aggregate amount of
$20
million. The per share purchase price for each purchase notice is equal to the lesser of (i) the lowest sale price of our common stock on the purchase date; or (ii) the arithmetic average of the three
lowest closing sale prices for
our
common stock during the
ten
consecutive
trading
days ending on
the
trading
day immediately preceding the
purchase date.
In addition, on any date on which we submit a purchase notice to Aspire Capital, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price (“
VWAP
”) purchase notice directing Aspire Capital to purchase an amount of stock equal to up to
30%
of the aggregate shares of our common stock traded on its principal market on the next trading day, or such lesser amount as we may determine. The purchase price per share pursuant to the VWAP purchase notice is
generally
97%
of the volume-weighted average price for our common stock traded on its principal market on the VWAP purchase date, subject to terms and limitations of the agreement.
The number of shares that may be issued to Aspire Capital under the Equity Line Agreement was limited to that number of shares representing
19.99%
of our pre-transaction shares outstanding (the “
Exchange Cap
”), unless shareholder approval was obtained or unless the average price for shares sold in excess of the Exchange Cap is equal or greater to
$1.48
which represents the closing bid price of our common stock at the date we entered into the Equity Line Agreement. In June 2018, our shareholders approved the issuance of shares to Aspire Capital under the Equity Line Agreement in excess of 19.99% of our pre-transaction shares outstanding.
In 2017, we sold an aggregate of
0.77
million shares of our common stock to Aspire Capital under the Equity Line Agreement for aggregate net proceeds of approximately
$0.96
million after deduction of legal and other offering costs of approximately
$0.04
million.
From
January 2018
to June 2018, we sold an aggregate of
2
.
9
million shares of our common stock to Aspire Capital under the Equity Line Agreement
for aggregate net proceeds of approximately
$
2.0
million
. As of December 31, 2018, we had no registered shares available under the Equity Line Agreement. Upon registration of additional shares, and subject to the terms and conditions of the Equity Line Agreement, including a
$0.50
pe
r share minimum price, we have
$16.9
million remaining under the Equity Line Agreement.
Director Stock Purchases
On March 26, 2018
,
three
of our directors purchased an aggregate of
0.2
million shares of our common stock in an unregistered sale of equity securities at a purchase price of
$0.83
per share. In February 2017,
one
of our directors purchased
0.1
million shares of our common stock in an unregistered sale of equity securities at a purchase price of
$2.11
per share. Director purchases of our common stock
wer
e made at or above market price at the date of purchase (see Note 14).
Stock for Services
For the year ended December 31, 2017, we issued an aggregate of
0.3
million shares of unregistered common stock to
two
consultants in exchange for an aggregate of approximately
$0.4
million in prepaid retainers for executive consulting and other advisory services. We have no registration obligation with respect to these shares.
Common Stock Warrants
In December 2018, we issued
a
warrant for the purchase of up to
5.0
million shares of our common stock
at
$0.16
per share
to Brickell in connection with an amendment to the CPIA (see Note 7).
The CPIA is recorded as a liability at its estimated fair value. At the transaction date, the estimated fair value of the liability to Brickell exceeded the net proceeds received from Brickell. Accordingly, no value was assigned to the warrants issued in connection with the transaction. The warrant is
immediately exercisable, expire
s
five
years from the date of issuance and include
s
cashless exercise and registration rights. Th
e shares underlying the warrant
have not yet been registered.
As of December 31, 2018, we had outstanding warrants for the purchase of up to
13.3
million shares of our common stock, including Pre-Funded Warrants for the purchase of up to
2.9
million shares
of our common stock
. The estimated grant date fair value of these warrants of
$
1
.
8
million and
$0.8
million at December 31, 2018 and 2017, respectively, is included in shareholders’ deficit in our consolidated balance sheets. As of December 31, 2018, our outstanding warrants have an average exercise price of
$0.39
per share and a weighted average remaining life of approximately
five
years.
For the year ended December 31, 2018, we issued approximately
2.0
million shares of our common stock upon cashless exercise of
2.1
million Pre-Funded Warrants. In addition, a warrant for the purchase of
0.07
million shares with an exercise price of
$3.25
per share expired unexercised in 2018. There were
no
warrant exercises or expirations for the year ended December 31, 2017 and
no
cash received from warrant exercises for 2018 or 2017.
Shareholder Protection Rights Agreement
On November 20, 2015, we amended our Shareholder Protection Rights Agreement (“
Rights Agreement
”) dated November 21, 2005. The amendment extends the expiration date of the Rights Agreement from November 21, 2015 to November 20, 2020 and decreases the exercise price of the rights to
$14.50
after giving effect to the
one
-for-ten reverse stock split that became effective March 30, 2016.
The Rights Agreement provided for the issuance, on November 29, 2005, as a dividend, rights to acquire fractional shares of Series E Preferred Stock. We 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 us to negotiate with our
Board
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 by ParkerVision will include an attached right.
The rights initially are not exercisable and trade with the common stock of ParkerVision. 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 us 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 $14.50 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 us 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 we are not the surviving corporation in a business combination, at an aggregate market price equal to twice the Exercise Price. We have the right to substitute for any of our shares of common stock that we are 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, liquidation, dissolution and winding up preferences, voting rights and will rank junior to other securities of ParkerVision unless otherwise determined by the Board.
The rights may be redeemed upon approval of the Board at a redemption price of
$0.01
.
12.
SHARE-BASED COMPENSATION
The following table presents share-based compensation expense included in our consolidated statements of comprehensive loss for the years ended December 31, 201
8
and 201
7
, respectively (in thousands):
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|
|
|
|
|
|
|
|
2018
|
|
2017
|
Research and development expense
|
$
|
169
|
|
$
|
564
|
Selling, general, and administrative expense
|
|
831
|
|
|
1,600
|
Restructuring expense
|
|
50
|
|
|
-
|
Total share-based compensation expense
|
$
|
1,050
|
|
$
|
2,164
|
|
|
|
|
|
|
We did not capitalize any expense related to share-based payments.
As of December 31, 2018, there was
$0.2
million
of total unrecognized compensation cost related to all non-vested share-based compensation awards. That cost is expected to be recognized over a weighted-average period of approximately
one
year.
Stock Incentive Plans
2011 Long-Term Incentive Equity Plan
We adopted a long-term incentive equity plan in September 2011 that, as amended in 2014, 2016 and 2017, provided for the grant of stock-based awards to employees, officers, directors and consultants, not to exceed
3.0
million shares of common stock
(the “
2011 Plan
”).
The 2011 Plan provides for benefits in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted
stock
awards, and other stock based awards.
Forfeited and expired options under the 2011 Plan become available for reissuance.
The plan provides that no participant may be granted awards in excess of
150,000
shares in any calendar year. At December 31, 2018,
296,952
shares of common stock were available for future grants under the 2011 Plan.
2008 Equity Incentive Plan
We adopted an equity incentive plan in August 2008 (the “
2008 Plan
”). The 2008 Plan provides for the grant of stock-based awards to employees (excluding named executives), directors and consultants, not to exceed
50,000
shares of common stock. The 2008 Plan provides for benefits in the form of incentive stock options, nonqualified stock options, stock appre
ciation rights, restricted stock
awards, and other stock based awards.
Forfeited and expired options under the 2008 Plan become available for reissuance.
The plan provides that no participant may be granted awards in excess of
5,000
shares in any calendar year. At December 31, 2018,
19,673
shares of common stock were available for future grants under the 2008 Plan.
2000 Performance Equity Plan
We adopted a performance equity plan in July 2000 (the “
2000 Plan
”). The 2000 Plan provided for the grant of options and other stock awards to employees, directors and consultants, not to exceed
500,000
shares of common stock. The 2000 Plan provided for benefits in the form of incentive and nonqualified stock options, stock appreci
ation rights, restricted stock
awards, stock bonuses and various stock benefits or cash.
No
additional
awards may be granted under this plan.
Restricted Stock Awards
RSAs are issued as executive and employee incentive compensation and as payment for services to others. The value of the award is based on the closing price of our common stock on the date of grant. RSAs are generally immediately vested.
Restricted Stock Units
RSUs are issued as incentive compensation to executives, employees, and non-employee directors as well as payment for services to third parties. Each RSU represents a right to one share of our common stock, upon vesting. The RSUs are not entitled to voting rights or dividends, if any, until vested. RSUs generally vest over a
one
to
three
year period for employee awards, a
one
year period for non-employee director awards and the life of the related service contract for third-party awards. The fair value of RSUs is generally based on the closing price of our common stock on the date of grant and is amortized to share-based compensation expense over the estimated life of the award, generally the vesting period. In the case of RSUs issued to third parties, the fair value is recognized based on the closing price of our common stock on each vesting date.
RSAs and RSUs
The following table presents a summary of RSA and RSU activity under
the 2000, 2008, and 2011 Plans (collectively, the “
Stock Plans
”)
as of December 31, 2018 (shares in thousands):
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|
|
|
|
|
|
|
|
|
Non-vested Shares
|
|
Shares
|
|
Weighted-Average
Grant Date Fair Value
|
Non-vested at beginning of year
|
521
|
|
$
|
1.98
|
Granted
|
221
|
|
|
0.37
|
Vested
|
(629)
|
|
|
1.42
|
Forfeited
|
(99)
|
|
|
1.94
|
Non-vested at end of year
|
14
|
|
$
|
1.98
|
|
|
|
|
|
The total fair value of RSAs and RSUs vested under the Stock Plans for the year ended December 31, 2018 is
$0.3
million.
Stock Options
Stock options are issued as incentive compensation to executives, employees, non-employee directors, and third parties.
Stock options are generally granted with exercise prices at or above fair market value of the underlying shares at the date of grant.
The fair value of options granted is estimated using the Black-Scholes option pricing model. Generally, fair value is determined as of the grant date. In the case of option grants to third parties, the fair value is estimated at each interim reporting date until vested.
Options for employees, including executives and non-employee directors, are generally granted under the Stock Plans.
The following table presents a summary of option activity under the Stock Plans for the year ended December 31, 2018 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value ($)
|
Outstanding at beginning of year
|
1,007
|
|
$
|
10.82
|
|
|
|
|
|
|
Granted
|
507
|
|
|
0.60
|
|
|
|
|
|
|
Exercised
|
-
|
|
|
-
|
|
|
|
|
|
|
Forfeited
|
(42)
|
|
|
1.59
|
|
|
|
|
|
|
Expired
|
(244)
|
|
|
9.96
|
|
|
|
|
|
|
Outstanding at end of year
|
1,228
|
|
|
7.09
|
|
4.66
|
years
|
|
$
|
-
|
Vested and expected to vest at end of year
|
849
|
|
$
|
9.98
|
|
3.73
|
years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average per share fair value of
option shares granted during the years ended December 31, 2018 and 2017 was
$0.46
and
$1.52
, respectively. The total fair value of option shares vested was
$0.5
million and
$0.2
million for the years ended December 31, 2018 and 2017, respectively.
The fair value of option grants under the Stock Plans for the years ended December 31, 2018 and 2017, respectively, was estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2018
|
|
2017
|
Expected option term
1
|
5
to
6
years
|
|
4
to
6
years
|
Expected volatility factor
2
|
68.8%
to
93.6%
|
|
98.0%
to
100.8%
|
Risk-free interest rate
3
|
2.6%
to
3.0%
|
|
1.7%
to
2.2%
|
Expected annual dividend yield
|
0%
|
|
0%
|
|
|
|
|
1
The expected term was generally 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 consultants, the expected term was determined based on the contractual life of the award.
2
The stock volatility for each grant is measured using the weighted average of historical daily price changes of our 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 measurement date.
Options by Price Range
The options outstanding at December 31, 2018 under all plans have exercise price ranges, weighted average contractual lives, and weighted average exercise prices are as follows (weighted average lives in years and shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Vested
|
Range of Exercise Prices
|
|
Number Outstanding at December 31, 2018
|
|
Wtd. Avg. Exercise Price
|
|
Wtd. Avg. Remaining Contractual Life
|
|
Number Exercisable at December 31, 2018
|
|
Wtd. Avg. Exercise Price
|
|
Wtd. Avg. Remaining Contractual Life
|
$0.60
-
$1.23
|
|
502
|
|
$
|
0.60
|
|
6.71
|
|
127
|
|
$
|
0.61
|
|
6.65
|
$1.80
-
$13.20
|
|
459
|
|
|
2.43
|
|
4.65
|
|
455
|
|
|
2.43
|
|
4.64
|
$13.80
-
$22.60
|
|
28
|
|
|
14.05
|
|
2.48
|
|
28
|
|
|
14.05
|
|
2.48
|
$23.80
-
$38.80
|
|
230
|
|
|
28.25
|
|
0.55
|
|
230
|
|
|
28.25
|
|
0.55
|
$45.10
-
$45.10
|
|
9
|
|
|
45.10
|
|
1.96
|
|
9
|
|
|
45.10
|
|
1.96
|
|
|
1,228
|
|
$
|
7.09
|
|
4.66
|
|
849
|
|
$
|
9.98
|
|
3.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon exercise of options under all plans, we issue new shares of our common stock. For shares issued upon exercise of equity awards granted under the Stock Plans, the shares of common stock are registered. For shares issued upon exercise of non-plan awards, the shares are not registered unless they have been subsequently registered by us on a registration statement. We had
no
option exercises for the years ended December 31, 2018 or 2017.
13.
RESTRUCTURING CHARGES
In August 2018, as a result of our limited capital resources,
our Board
approved plans to reduce our ongoing operating expenses, including a reduction in workforce of approximately
30
employees and closure of our engineering design facility in Lake Mary, Florida. As a result of the cost reduction measures, we ceased any ongoing integrated circuit design activities and significantly reduced our sales and marketing expenditures with respect to our Milo products. Expenses related to our restructuring are included in operating expenses in our consolidated statements of comprehensive loss under the heading “Restructuring charges.”
Restructuring charges for the year ended December 31, 2018 include the following (in thousands):
|
|
|
|
|
|
|
2018
|
One-time termination benefits
|
$
|
135
|
Lease expense
|
|
163
|
Asset impairment charges
|
|
375
|
Other
|
|
17
|
|
$
|
690
|
|
|
|
Termination Benefits
Accrued one-time termination benefits consist of the following (in thousands):
|
|
|
|
|
|
|
2018
|
Accrued termination benefits, beginning of period
|
$
|
-
|
Termination benefits recognized
|
|
135
|
Termination benefits settled
|
|
(115)
|
Accrued termination benefits, end of period
|
$
|
20
|
|
|
|
Lease Payable
In connection with the cease-use date of our Lake Mary, Florida facility, we recorded a lease payable for the
estimated fair value of remaining lease rental payments, less estimated sublease rentals, net of deferred rent. Our lease payable consists of the following (in thousands):
|
|
|
|
|
|
|
2018
|
Lease payable, beginning of period
|
$
|
-
|
Present value of future minimum lease payments less
estimated future sublease rentals, net of deferred rent of
$62
|
|
182
|
Settlements
|
|
(48)
|
Change in estimate
|
|
43
|
Lease payable, end of period
|
|
177
|
Current portion of lease payable
|
|
86
|
Long-term portion of lease payable
|
$
|
91
|
|
|
|
14.
RELATED PARTY TRANSACTIONS
We paid approximately
$0.03
million and
$0.03
million in 2018 and 2017, respectively, for patent-related legal services to
SKGF
, of which Robert Sterne, one of our directors since September 2006, is a partner. In addition, we paid approximately
$0.06
million a
nd
$0.07
million in 2018 and 2017, respectively for principal and interest on an unsecured note payable to SKGF (the “
SGKF Note
”). The SKGF Note was issued in 2016, to convert outstanding unpaid fees to an unsecured promissory note.
The SKGF Note was amended in January 2018 and August 2018 to defer principal payments. The SKGF Note allows for interest at
8%
per annum and matures on
March 31, 2020
. At
December 31, 2018, the outstanding balance of the note, including
accrued and
unpaid interest is
approximately
$0.8
million (see Note 7).
On September 10, 2018, we sold an aggregate of
$0.4
million in promissory notes, convertible into shares of our common stock at a fixed conversion price of
$0.40
to related parties on the same terms as other convertible notes sold in the same transaction
(see Note 7)
.
Jeffrey Parker
, our chief executi
ve officer and chairman of the B
oard,
Paul Rosenbaum
, one of our directors since December 2016, and incoming independent director, Lewis Titterton, each purchased a convertible note with a face value of
$0.1
million. In addition, Stacie Wilf, sister to Jeffrey Parker, purchased a convertible note with a face value of
$0.1
million.
On
March 26, 2018
,
three of our directors purchased an aggregate of
0.2
million shares of our common stock in an unregistered sale of equity securities at a purchase price of
$0.83
per share, which represented the closing bid price of our common stock on the purchase date.
In February 2017, one of our directors, Mr. Paul Rosenbaum, purchased approximately
0.1
million shares of our common stock in an unregistered sale of equity securities at a purchase price of
$2.11
per share (see Note 11).
15.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to a concentration of credit risk principally consist of cash and cash equivalents, restricted cash equivalents, and our available for sale securities. Cash and cash equivalents are primarily held in bank accounts and overnight investments. At times our cash balances on deposit with banks may exceed the balance insured by the F.D.I.C. Restricted cash equivalents are held in accounts with brokerage institutions and consist of short-term money market funds. Our available-for-sale securities are held in accounts with brokerage institutions and consist of mutual funds invested primarily in short-term municipal securities.
We maintain our investments with what management believes to be quality financial institutions and while we limit the amount of credit exposure to any one institution, we could be subject to credit risks from concentration of investments in a single fund as well as credit risks arising from adverse conditions in the financial markets as a whole.
16.
SUBSEQUENT EVENTS
In February and March 2019, we sold an aggregate of
$1.3
million in convertible notes to accredited investors. The notes
mature
five
years from the date of issuance and are convertible, at the holders’ option, into shares of our common stock at a fixed conversion price of
$0.25
per share. The notes bear interest at a stated rate of
8%
per annum. Interest is payable quarterly, and we may elect, subject to certain equity conditions, to pay interest in cash, shares of our common stock, or a combination thereof.
On March 29, 2019, we amended our promissory note payable to SKGF to provide for
a decrease in the interest rate from
8%
to
4%
per year, an extension of the maturity date from
March 2020
to
April 2022
, and a reduction in the monthly payment. In connection with this amendment, SKGF also waived any prior payment defaults under the note. As a result of this amendment, approximately
$0.65
million of our obligation to SKGF was reclassified from current to long-term liabilities as of December 31, 2018.
P
ART III
Item 10. Dire
ctors, Executive Officers and Corporate Governance.
Directors
Our Board is divided into three classes with only one class of directors typically being elected in each year and each class serving a three-year term. In September 2018, our Board decreased its size from eight to five. In connection with this decrease in size, Messrs. Papken der Torossian, William Hightower, John Metcalf, and Nam Suh resigned.
The resignation of these directors was not due to any disagreement with us on any matter relating to our operations, policies, practices, or otherwise. The Board appointed Lewis H. Titterton to fill the vacancy resulting from the director resignations.
Our current directors, including their backgrounds and qualifications are as follows
:
|
|
|
|
|
Name
|
|
Age
|
|
Position with the Company
|
Frank N. Newman
|
|
76
|
|
Class II Director
|
Jeffrey L. Parker
|
|
62
|
|
Class I Director, Chairman of the Board and Chief Executive Officer
|
Paul A. Rosenbaum
|
|
76
|
|
Class III Director, Audit Committee Member
|
Robert G. Sterne
|
|
67
|
|
Class III Director
|
Lewis H. Titterton
|
|
74
|
|
Class I Director, Audit Committee Chair
|
|
|
|
|
|
Frank N. Newman
Frank Newman has been a director of ours since December 2016. Mr. Newman has served since 2011 as chairman of Promontory Financial Group China Ltd., an advisory group for financial institutions and corporations in China. From 2005 to 2010, he served as chairman and chief executive officer of Shenzhen Development Bank, a national bank in China. Prior to 2005, Mr. Newman served as chairman, president, and chief executive officer of Bankers Trust and chief financial officer of Bank of America and Wells Fargo Bank. Mr. Newman served as Deputy Secretary of the U.S. Treasury from 1994 to 1995 and as Under Secretary of Domestic Finance from 1993 to 1994. He has authored two books and several articles on economic matters, published in the U.S., mainland China, and Hong Kong. Mr. Newman has served as a director for major public companies in the U.S., United Kingdom, and China, and as a member of the Board of Trustees of Carnegie Hall. He earned his BA, magna cum laude, in economics at Harvard. Mr. Newman brings a substantial knowledge of international banking and business relationships to the Board. His contacts, particularly in China, including Hong Kong, could prove valuable to our international strategies. In addition, his financial background adds an important expertise to the Board with regard to financing future business opportunities.
Jeffrey L. Parker
Jeffrey Parker has been the Chairman of our Board and our Chief Executive Officer since our inception in August 1989 and was our president from April 1993 to June 1998. From March 1983 to August 1989, Mr. Parker served as executive vice president for Parker Electronics, Inc., a joint venture partner with Carrier Corporation performing research, development, manufacturing, and sales and marketing for the heating, ventilation and air conditioning industry. Mr. Parker is a named inventor on 31 U.S. patents. Among other qualifications, as Chief Executive Officer, Mr. Parker has relevant insight into our operations, our industry, and related risks as well as experience bringing disruptive technologies to market.
Paul A. Rosenbaum
Paul A. Rosenbaum has been a director of ours since December 2016 and a member of our Audit Committee since September 2018. Mr. Rosenbaum has extensive experience as a director and executive officer for both public and private companies in a number of industries. Since 1994, Mr. Rosenbaum has served as chief executive of SWR Corporation, a privately-held corporation that designs, sells, and markets specialty industrial chemicals. Since 2009, Mr. Rosenbaum has been a member of the Providence St. Vincent Medical Foundation Council of Trustees, and previously served as president of the Council. In addition, from September 2000 until June 2009, Mr. Rosenbaum served as chairman and chief executive officer of Rentrak Corporation (“
Rentrak
”), a Nasdaq publicly traded company that provides transactional media measurement and analytical services to the entertainment and media industry. From June 2009 until July 2011, Mr. Rosenbaum served in a non-executive capacity as chairman of Rentrack. From 2007 until 2016, Mr. Rosenbaum served on the Board of Commissioners for the Port of Portland, including as vice chairman from 2012 to 2016. Mr. Rosenbaum was chief partner in the Rosenbaum Law Center from 1978 to 2000 and served in the Michigan Legislature from 1972 to 1978, during which time he chaired the Michigan House Judiciary Committee, was legal counsel to the Speaker of the House of the state of Michigan and wrote and sponsored the Michigan Administrative Procedures Act. Additionally, Mr. Rosenbaum served on the National Conference of Commissioners on Uniform State Laws, as vice chairman of the Criminal Justice and Consumer Affairs Committee of the National Conference of State Legislatures, and on a committee of the Michigan Supreme Court responsible for reviewing local court rules.
Among other qualifications, Mr. Rosenbaum has extensive experience as a director and executive officer of a publicly held corporation and has relevant insights into operations and our litigation strategies.
Robert G. Sterne
Robert Sterne
has been a director of ours since September 2006 and also served as a director of ours from February 2000 to June 2003
. Since 1978, Mr. Sterne has been a partner of the law firm of Sterne, Kessler, Goldstein & Fox PLLC, specializing in patent and other intellectual property law. Mr. Sterne provides legal services to us as one of our patent and intellectual property attorneys. Mr. Sterne has co-authored numerous publications related to patent litigation strategies. He has received multiple awards for contributions to intellectual property law including Law 360’s 2016 Top 25 Icons of IP and the Financial Times 2015 Top 10 Legal Innovators in North America. Among other qualifications, Mr. Sterne has an in-depth knowledge of our intellectual property portfolio and patent strategies and is considered a leader in best practices and board responsibilities concerning intellectual property.
Lewis H. Titterton
Lewis Titterton was appointed by the Board in September 2018 as a result of a vacancy created by our Board restructuring. Mr. Titterton
has a background in technology with an emphasis in healthcare. He is the current chairman of the board of NYMED, Inc., a diversified health services company, a position he has held since 1989. Mr. Titterton also serves as the lead independent director for Anixa Biosciences, Inc., formerly ITUS Corporation, (“
Anix
”), a Nasdaq biotech company. Mr. Titterton has served as a director of Anix since July 2017 and from August 2010 through August 2016, including as the chairman of the board from July 2012 through August 2016 and interim chief executive officer from August 2012 until September 2012. Mr. Titterton founded MedE America, Inc. in 1986 and was chief executive officer of Management and Planning Services, Inc. from 1978 to 1986. He holds a M.B.A. from the State University of New York at Albany, and a B.A. degree from Cornell University. Mr. Titterton has substantial experience with advising on the strategic development of technology companies and over forty years of experience in various aspects of the technology industry.
Former Directors
Papken der Torossian was a director of ours from June 2003 to September 2018. Since 1997, Mr. der Torossian has served as the president and chief executive officer of Crest Enterprises, LLC, a privately-held consulting and investment company. Mr. der Torossian has extensive experience as chairman and chief executive of a number of semiconductor and technology-based companies. Mr. der Torossian was chief executive officer of Silicon Valley Group, Inc. (“
SVGI
”) from 1986 until 2001 when it was acquired by ASML. Prior to his joining SVGI, from 1981 until 1986, he was president and chief executive officer of ECS Microsystems, a communications and personal computer company that was acquired by Ampex Corporation where he stayed on as a manager for a year. From 1976 to 1981, Mr. der Torossian was president of the Santa Cruz Division of Plantronics where he also served as vice president of the Telephone Products Group. Previous to that, he spent four years at Spectra-Physics, Inc. and 12 years with Hewlett-Packard in a variety of management positions. From August 2007 until its acquisition in 2016, Mr. der Torossian has served as a director and a member of the compensation committee and nominating and governance committees of Atmel Corporation, a publicly traded company.
William Hightower was a director of ours from March 1999 until September 2018. Mr. Hightower has extensive experience as an executive officer and operating officer for both public and private companies in a number of industries, including telecommunications. From September 2003 to his retirement in November 2004, Mr. Hightower served as our president. Mr. Hightower was the president and chief operating officer and a director of SVGI, from August 1997 until May 2001. SVGI was a publicly held company which designed and built semiconductor capital equipment tools for chip manufacturers. From January 1996 to August 1997, Mr. Hightower served as chairman and chief executive officer of CADNET Corporation, a developer of network software solutions for the architectural industry. From August 1989 to January 1996, Mr. Hightower was the president and chief executive officer of Telematics International, Inc.
John Metcalf was a director of ours from June 2004 to September 2018. From November 2002 until his retirement in July 2010, Mr. Metcalf was a partner with Tatum LLC, the largest executive services and consulting firm in the U.S. Mr. Metcalf has 18 years’ experience as a chief financial officer. From July 2006 to September 2007, Mr. Metcalf served as chief financial officer for Electro Scientific Industries, Inc., a provider of high-technology manufacturing equipment to the global electronics market. From June 2004 to July 2006, Mr. Metcalf served as chief financial officer for Siltronic AG. From August 2011 to February 2013, Mr. Metcalf served on the board of directors and was chairman of the audit, compensation, and nominating committees of Trellis Earth Products, Inc, a privately held company. From June 2007 until July 2011, Mr. Metcalf served on the board of directors and was chairman of the audit committee of EnergyConnect Group, Inc. (formerly Microfield Group, Inc.), a publicly traded company that was acquired by Johnson Controls, Inc. in July 2011.
Nam Suh
was a director of ours from December 2003 to September 2018. Dr. Suh served as the president of Korea Advanced Institute of Science and Technology from July 2006 to February 2013. He is a member of the board of trustees of King Abdullah University of Science and Technology of Saudi Arabia and a member of a number of advisory organizations, including the International Advisory Board of King Fahd University of Science and Technology and the Research Advisory Board of Arcelik of Istanbul, Turkey. Dr. Suh is currently the Cross Professor Emeritus at the Massachusetts Institute of Technology (“
MIT
”) where he had been a member of the faculty since 1970. At MIT, Dr. Suh held many positions including director of the MIT Laboratory for Manufacturing and Productivity, head of the department of Mechanical Engineering, director of the MIT Manufacturing Institute, and director of the Park Center for Complex Systems. In 1984, Mr. Suh was appointed the assistant director for Engineering of the National Science Foundation by President Ronald Reagan and confirmed by the U.S. Senate. From 2005 to 2009, Dr. Suh served on the board of directors of Integrated Device Technology, Inc., a Nasdaq -listed company
that develops mixed signal semiconductor solutions, and, from 2004 to 2007, he served on the board of directors of Therma-Wave, Inc., a Nasdaq -listed company that manufactures process control metrology systems for use in semiconductor manufacturing. Dr. Suh has significant experience with technology innovation and the process of new product introduction, including an invention selected as one of the 10 Emerging Technologies of the world by the 2013 World Economic Forum of Davos and 50 most promising new inventions of 2010 by TIME magazine. Dr. Suh is a widely published author of approximately 300 articles and ten books on topics related to tribology, manufacturing, plastics, design, and large systems. Dr. Suh has approximately 100 patents, some of which relate to electric vehicles, polymers, tribology, and design. He has received many national and international honors and awards, including the NSF Distinguished Service Award, 2009 ASME Medal, and nine honorary doctorates from various universities on four continents.
Executive Officers
Our current executive officers are as follows
:
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with the Company
|
Jeffrey Parker
|
|
62
|
|
Chairman of the Board and Chief Executive Officer (“CEO”)
|
Cynthia Poehlman
|
|
52
|
|
Chief Financial Officer and Corporate Secretary (“CFO”)
|
David Sorrells
|
|
60
|
|
Chief Technical Officer and Director (“CTO”)
|
Gregory Rawlins
|
|
61
|
|
Chief Technical Officer – Heathrow (“CTO - Heathrow”)
|
|
|
|
|
|
The background for Mr. Jeffrey Parker is included above under the heading “Directors”.
Cynthia Poehlman
Cynthia Poehlman has been our chief financial officer since June 2004 and our corporate secretary since August 2007. From March 1994 to June 2004, Ms. Poehlman was our controller and our chief accounting officer. Ms. Poehlman has been a certified public accountant in the state of Florida since 1989.
David Sorrells
David Sorrells has been our chief technical officer since September 1996 and served as our engineering manager from June 1990 to September 1996. He also served as a director of ours from January 1997 to June 2018. Mr. Sorrells is one of the leading inventors of our core technologies. He holds 190 U.S. patents and a number of corresponding foreign patents.
Gregory Rawlins
Gregory Rawlins
has been the chief technical officer for our
Heathrow (Lake Mary) location since July 2017. Prior to July 2017, Dr. Rawlins served as our chief staff scientist since 2000 when we acquired Signal Technologies, Inc., a wireless and integrated circuit design engineering company that he founded in 1987 and where he served as chief executive officer. Dr. Rawlins has received several IEEE awards including Engineer of the Year in 1987, Entrepreneur of the Year in 1995, and Lifetime Achievement Award in Engineering in 2011. Dr. Rawlins is a named inventor on a number of our core patents.
Former Executive Officers
Prior to our restructuring in August 2018, Mr. John Stuckey
served as our Chief Marketing Officer (“CMO”) from July 2017 to August 2018 and our vice president of corporate strategy and business development from July 2004 to July 2017. Prior to July 2004, Mr. Stuckey spent five years at Thomson,
Inc. where he most recently served as director of business development.
Family Relationships
There are no family relationships among our officers or directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires our officers, directors and persons who beneficially own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and ten percent shareholders are charged by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms received by us and written representations from certain reporting persons that no Forms 5 were required for those persons, we believe that, during the fiscal year ended December 31, 2018 our executive officers, directors and ten percent shareholders filed all reports required by Section 16(a) of the Exchange Act on a timely basis, except for (i) Form 4 reports filed by Mr. Jeffrey Parker and Mr. Gregory Rawlins on June 8, 2018 which reported the May 31, 2018 vesting of previously granted RSUs; and (ii) Form 4 reports filed by Mr. David Sorrells and Mr. Gregory Rawlins on November 30, 2018 which reported the grant and vesting of RSUs awarded on November 16, 2018 in lieu of salary.
Code of Ethics
The Board has adopted a code of ethics applicable to all of our directors, officers and employees, including our chief executive officer and our chief financial and accounting officer, that is designed to deter wrongdoing and to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in reports that we file or submit to the SEC and in our other public communications, compliance with applicable government laws, rules and regulations, prompt internal reporting of violations of the code to an appropriate person designated in the code and accountability for adherence to the code. A copy of the code of ethics may be found on our website at
www.parkervision.com
.
Shareholder Nominations
There have been no material changes to the procedures by which security holders may recommend nominees to our Board.
Audit Committee and Financial Expert
Prior to the resizing of our Board in September 2018, we had an audit committee that was comprised of three independent directors as determined in accordance with Nasdaq and our Board had determined that Mr. John Metcalf was an audit committee financial expert
within the meaning of the rules and regulations of the SEC and was independent as determined in accordance with current Nasdaq listing standards for audit committee members.
Prior to September 2018, the members of the audit committee were Messrs. Hightower, Metcalf, and der Torossian and Mr. Metcalf served as chairman of the audit committee.
Subsequent to our Board resizing in September 2018 and our delisting from Nasdaq in August 2018, we maintain an audit committee comprised of two independent directors. Messrs. Lewis Titterton and Paul Rosenbaum serve as the members of our audit committee with Mr. Titterton serving as audit committee chairman.
Our audit committee is governed by a Board-approved charter which, among other things,
establishes the audit committee’s membership requirements and its powers and responsibilities.
Our Board has determined that Messrs. Titterton and Rosenbaum are both audit committee financial experts within the meaning of the rules and regulations of the SEC.
Item 11. Exec
utive Compensation.
Summary Compensation Table
The following table summarizes the total compensation of each of our “named executive officers” as defined in Item 402(m) of Regulation S-K (the “
Executives
”) for the fiscal years ended December 31, 2018 and 2017. Given the complexity of disclosure requirements concerning executive compensation, and in particular with respect to the standards of financial accounting and reporting related to equity compensation, there is a difference between the compensation that is reported in this table versus that which is actually paid to and received by the Executives. The amounts in the Summary Compensation Table that reflect the full grant date fair value of an equity award, do not necessarily correspond to the actual value that has been realized or will be realized in the future with respect to these awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
Name and Principal Position
|
Year
|
|
Salary
($)
|
|
Bonus ($)
|
|
Stock Awards
($)
(1)
|
|
Option Awards
($)
(1)
|
|
All Other
($)
|
|
Total
($)
|
Jeffrey Parker, CEO
|
2018
|
|
$
|
297,500
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
24,000
|
5
|
$
|
321,500
|
|
2017
|
|
|
325,000
|
|
|
-
|
|
|
198,000
|
|
|
31,012
|
|
|
24,000
|
5
|
|
578,012
|
Cynthia Poehlman, CFO
|
2018
|
|
|
205,962
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
205,962
|
|
2017
|
|
|
225,000
|
|
|
-
|
|
|
99,000
|
|
|
31,012
|
|
|
750
|
6
|
|
355,762
|
David Sorrells, CTO
|
2018
|
|
|
252,303
|
2
|
|
2,149
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
254,452
|
|
2017
|
|
|
275,625
|
|
|
1,003
|
|
|
-
|
|
|
31,012
|
|
|
2,535
|
6
|
|
310,175
|
John Stuckey, CMO
3
|
2018
|
|
|
175,696
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,692
|
3
|
|
183,388
|
|
2017
|
|
|
250,000
|
|
|
-
|
|
|
99,000
|
|
|
31,012
|
|
|
1,263
|
6
|
|
381,275
|
Gregory Rawlins, CTO Heathrow
|
2018
|
|
|
228,846
|
4
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
228,846
|
|
2017
|
|
|
250,000
|
|
|
-
|
|
|
99,000
|
|
|
27,604
|
|
|
-
|
|
|
376,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The amounts represented in columns (e) and (f) represents the full grant date fair value of equity awards in accordance with ASC 718. Refer to Note 12 to the consolidated financial statements for the year ended December 31, 2018 included in Item 8 for the assumptions made in the valuation of equity awards.
2
Includes $8,481 which represents the grant-date fair value of restricted stock received by the executive in lieu of salary.
3
Mr. Stuckey’s employment was terminated in August 2018. The amount reported in column (g) represents amounts paid in connection with termination of executive’s employment, including $7,215 which represents the grant-date fair value of restricted stock received by the executive in lieu of cash.
4
Includes $7,692 which represents the grant-date fair value of restricted stock received by the executive in lieu of salary.
5
Represents an automobile allowance in the amount of $24,000.
6
Represents the dollar value of premiums paid by us for life insurance for the benefit of the executive.
In August 2018, each of our Executives agreed to a 20% reduction in base salary in connection with our planned restructuring. In addition, in 2018, we elected not to renew term life insurance policies previously provided on behalf of certain of our Executives. The Executives were provided the option to
assume premium payments and ownership of those policies.
We do
not
have employment agreements with any of our Executives. We have non-compete arrangements in place with all of our employees, including our Executives, that impose post-termination restrictions on (i) employment or consultation with competing companies or customers, (ii) recruiting or hiring employees for a competing company, and (iii) soliciting or accepting business from our customers. We also have a tax-qualified defined contribution 401(k) plan for all of our employees, including our Executives. We did not make any employer contributions to the 401(k) plan in 2018 or 2017.
Outstanding Equity Awards at Fiscal Year End
The following table summarizes information concerning the outstanding equity awards, including unexercised options, unvested stock and equity incentive awards, as of December 31, 2018 for each of our Executives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Name
|
|
(a)
|
|
(b)
|
(c)
|
|
(d)
|
|
Jeffrey Parker
|
|
60,000
|
|
-
|
|
28.30
|
|
7/16/2019
|
|
|
|
20,000
|
|
-
|
|
1.98
|
|
8/15/2024
|
|
Cynthia Poehlman
|
|
12,500
|
|
-
|
|
28.30
|
|
7/16/2019
|
|
|
|
20,000
|
|
-
|
|
1.98
|
|
8/15/2024
|
|
David Sorrells
|
|
30,000
|
|
-
|
|
28.30
|
|
7/16/2019
|
|
|
|
20,000
|
|
-
|
|
1.98
|
|
8/15/2024
|
|
John Stuckey
|
|
20,000
|
|
-
|
|
1.98
|
|
8/22/2019
|
|
Gregory Rawlins
|
|
12,500
|
|
-
|
|
28.30
|
|
7/16/2019
|
|
|
|
20,000
|
|
-
|
|
1.98
|
|
8/15/2024
|
|
|
|
|
|
|
|
|
|
|
|
Director Compensation
Following our Board restructuring in September 2018, the Board eliminated all cash fees for Board and committee service. Prior to our restructuring, our standard non-employee director compensation program provided for cash retainers for service on the Board and Board committees. Committee fees were structured in such a way as to provide distinction between compensation for committee members and chairpersons and between the responsibilities of the various committees. Each non-employee director was entitled to an annual cash retainer of $37,500. In addition, non-employee directors who served on the audit committee received an annual cash retainer of $7,500 ($15,000 for the committee chair). Non-employee directors who served on the compensation committee received an annual cash retainer of $5,000 ($10,000 for the committee chair). Non-employee directors who served on the nominating and corporate governance committee received an annual cash retainer of $2,500 ($5,000 for the committee chair).
Two of our directors, Messrs. Newman and Rosenbaum, who were appointed in December 2016 waived all cash fees for director and committee service through December 2018 and each received 50,000 share options and 50,000 RSUs. Twenty percent of the equity awards vested upon grant and the remaining
portion of the awards vested in eight equal quarterly increments through December 2018.
Our standard director compensation program generally includes annual equity-based compensation to our non-employee directors in the form of
RSUs,
nonqualified stock options, or a combination thereof. Upon completion of the Board restructuring in September 2018, each of the non-employee directors received 125,000 nonqualified share options at an exercise price of $0.60 per share. The options vest in four equal increments over a one year period. Director equity compensation awards are forfeited if the director resigns or is removed from the Board for cause prior to the vesting date.
We reimburse our non-employee directors for their reasonable expenses incurred in attending meetings and we encourage participation in relevant educational programs for which we reimburse all or a portion of the costs incurred for these purposes.
Directors who are also our employees are not compensated for serving on our Board.
The following table summarizes the compensation of our current and former non-employee directors for the year ended December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or Paid in Cash
($) 1
|
|
Stock
Awards($)
|
|
Option
Awards($) 2
|
|
Total
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
Frank Newman
3
|
|
|
-
|
|
|
-
|
|
|
57,621
|
|
|
57,621
|
Paul Rosenbaum
3
|
|
|
-
|
|
|
-
|
|
|
57,621
|
|
|
57,621
|
Robert Sterne
4
|
|
|
26,667
|
|
|
-
|
|
|
57,621
|
|
|
84,288
|
Lewis Titterton
5
|
|
|
-
|
|
|
-
|
|
|
57,621
|
|
|
57,621
|
Papken der Torossian
6
|
|
|
36,667
|
|
|
-
|
|
|
-
|
|
|
36,667
|
William Hightower
6
|
|
|
33,333
|
|
|
-
|
|
|
-
|
|
|
33,333
|
John Metcalf
7
|
|
|
38,333
|
|
|
-
|
|
|
-
|
|
|
38,333
|
Nam Suh
7
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
1
A
mount represents fees earned, but unpaid for 2018 annual Board and committee retainers.
2
The amounts represented in column (d) represent the full grant date fair value of share-based awards in accordance with
ASC 718. Refer to Note 12 of the financial statements included in Item 8 for the assumptions made in the valuation of stock awards.
3
At December 31, 2018, Messrs. Newman and Rosenbaum each have an aggregate of 175,000 nonqualified stock options outstanding, of which 81,250 are exercisable.
4
At December 31, 2018, Mr. Sterne has 247,546 nonqualified stock options outstanding, of which 153,796 are exercisable.
5
At December 31, 2018, Mr. Titterton has 125,000 nonqualified stock options outstanding, of which 31,250 are exercisable.
6
At December 31, 2018, Mssrs. der Torossian, and Hightower each has 25,811 nonqualified stock options outstanding and exercisable
.
7
At December 31, 2018, Messrs. Metcalf and Suh each has 74,178 nonqualified stock options outstanding and exercisable.
Item 12. Sec
urity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table gives information as of December 31, 2018 about shares of our common stock authorized for issuance under all of our equity compensation plans (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
Plan Category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
(a)
|
|
(c)
|
Equity compensation plans approved by security holders
(1)
|
1,228
|
$7.09
|
317
|
Equity compensation plans not approved by security holders
|
-
|
-
|
-
|
Total
|
1,228
|
|
317
|
|
|
|
|
1
Includes the 2000 Plan, the 2008 Plan and the 2011 Plan. The types of awards that may be issued under each of
these plans is discussed more fully in Note 12 to our consolidated financial statements included in Item 8.
Security Ownership of Certain Beneficial Holders
The following table sets forth certain information as of March 29, 2019 with respect to the stock ownership of (i) those persons or groups who beneficially own more than 5% of our common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group (based upon information furnished by those persons).
As of March 29, 2019, 30,637,591 shares of our common stock were issued and outstanding.
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percent
of Class
1
|
EXECUTIVE OFFICERS AND DIRECTORS
|
|
|
|
|
Jeffrey Parker
10
|
|
607,270
|
2
|
2.0%
|
Cynthia Poehlman
10
|
|
82,693
|
3
|
*
|
Gregory Rawlins
10
|
|
100,197
|
3
|
*
|
David Sorrells
10
|
|
129,291
|
4
|
*
|
Frank Newman
10
|
|
165,000
|
5
|
*
|
Paul Rosenbaum
10
|
|
815,838
|
6
|
2.6%
|
Robert Sterne
10
|
|
233,311
|
7
|
*
|
Lewis Titterton
10
|
|
1,180,343
|
8
|
3.8%
|
All directors, director nominees and executive officers as a group (8 persons)
|
|
3,313,943
|
9
|
10.4%
|
|
|
|
|
|
* Less than 1%
1
Percentage is calculated based on all outstanding shares of common stock plus, for each person or group, any shares of common stock that the person or the group has the right to acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights. Unless otherwise indicated, each person or group has sole voting and dispositive power over all such shares of common stock.
2
Includes 80,000 shares of common stock issuable upon currently exercisable options, 483,324 shares held by Mr. Parker directly, 117,259 shares held by Jeffrey Parker and Deborah Parker Joint Tenants in Common, over which Mr. Parker has shared voting and dispositive power, and 6,687 shares owned of record by Mr. Parker’s child over which he disclaims ownership.
3
Includes 32,500 shares of common stock issuable upon currently exercisable options.
4
Includes 50,000 shares of common stock issuable upon currently exercisable options.
5
Includes 112,500 shares of common stock issuable upon currently exercisable options and excludes 62,500 shares of common stock issuable upon options that may become exercisable in the future.
6
Includes 112,500 shares of common stock issuable upon currently exercisable options and 250,000 shares of common stock issuable upon conversion of convertible notes and excludes 62,500 shares of common stock issuable upon options that may become exercisable in the future.
7
Includes 185,046 shares of common stock issuable upon currently exercisable options and excludes 62,500 shares of common stock issuable upon options that may become exercisable in the future.
8
Includes 62,500 shares of common stock issuable upon currently exercisable options and 250,000 shares of common stock issuable upon conversion of convertible notes and excludes 62,500 shares of common stock issuable upon options that may become exercisable in the future.
9
Includes 667,546 shares of common stock issuable upon currently exercisable options and 500,000 shares of common stock issuable upon conversion of convertible notes held by directors and officers and excludes 250,000 shares of common stock issuable upon options that may become exercisable in the future (see notes 2, 3, 4, 5, 6, 7, and 8 above).
10
The person’s address is 7915 Baymeadows Way, Suite 400, Jacksonville, Florida 32256.
Item 13. Ce
rtain Relationships and Related Transactions and Director Independence.
Related Party Transactions
We paid approximately $30,000 and $30,000 in 2018 and 2017, respectively for patent-related legal services to
SKGF
, of which Robert Sterne, is a partner. In addition, we paid approximately $59,000 and $66,000 in 2018 and 2017, respectively for principal and interest on an unsecured note payable to SKGF (the “
SKGF Note
”). The SKGF Note was issued in 2016 to convert outstanding unpaid legal fees to an unsecured promissory note. The SKGF Note was amended in January 2018 and August 2018 to defer principal payments. The SKGF Note allows for interest at 8% per annum and matures March 31, 2020. At
December 31, 2018, the outstanding balance of the note, including unpaid interest is $836,000.
On September 10, 2018, we sold an aggregate of $400,000 in promissory notes, convertible into shares of our common stock at a fixed conversion price of $0.40 to related parties on the same terms as other convertible notes sold in the same transaction. Jeffrey Parker, our chief executive officer and chairman of the Board, Paul Rosenbaum, one of our directors since December 2016, and incoming independent director, Lewis Titterton, each purchased a convertible note with a face value of $100,000. In addition, Stacie Wilf, sister to Jeffrey Parker, purchased a convertible note with a face value of $100,000.
On March 26, 2018 three of our directors purchased an aggregate of 200,000 shares of our common stock in an unregistered sale of equity securities at a purchase price of $0.83 per share, which represented the closing bid price of our common stock on the purchase date. In February 2017, one of our directors, Mr. Paul Rosenbaum, purchased 80,510 shares of our common stock in an unregistered sale of equity securities at a purchase price of $2.11 per share, which represented the closing bid price of our common stock on the purchase date.
Director Independence
We follow the rules of Nasdaq in determining if a director is independent. The Board also consults with our counsel to ensure that the Board’s determination is consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. Prior to our restructuring, the Board affirmatively determined that Messrs. der Torossian, Hightower, Metcalf, Newman, Rosenbaum, Sterne and Suh were independent directors. After our restructuring, the Board has affirmatively determined that Messrs. Newman, Rosenbaum, Sterne and Titterton are independent directors.
Item 14. P
rincipal Accountant Fees and Services.
The firm of BDO USA, LLP acts as our principal accountants. Prior to April 2018, the firm of PricewaterhouseCoopers LLP acted as our principal accountants (“
Prior Accountants
”). The following is a summary of fees paid to the principal accountants and Prior Accountants for services rendered.
Audit Fees.
For the year ended December 31, 2018, the aggregate fees billed by our principal accountants for professional services rendered for the audit of our annual financial statements, the review of our financial statements included in our quarterly reports, and services provided in connection with regulatory filings were approximately $316,700. In addition, for the years ended December 31, 2018 and 2017, the aggregate fees billed by our Prior Accountants for professional services rendered in connection with the audit of our annual financial statements, the review of our financial statements included in our quarterly reports, and services provided in connection with regulatory filings were approximately $50,000 and $545,000, respectively.
Audit Related Fees.
For the years ended December 31, 2018 and 2017, there were no fees billed for professional services by our principal accountants or Prior Accountants for assurance and related services.
Tax Fees.
For the year ended December 31, 2018, there were no fees billed for professional services rendered by our principal accountants for tax compliance, tax advice or tax planning. For the year ended December 31, 2017, the aggregate fees billed by our Prior Accountants for professional services for tax compliance, tax advice or planning were approximately $4,975.
All Other Fees.
For the year ended December 31, 2018, t
here were no fees billed for other professional services by our principal accountants. For the year ended December 31, 2017, fees billed by our Prior Accountants for an accounting software license were $900.
All the services discussed above were approved by our audit committee. The audit committee pre-approves the services to be provided by our principal accountants, including the scope of the annual audit and non-audit services to be performed by the principal accountants and the principal accountants’ audit and non-audit fees.