NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business
ParkerVision,
Inc. and its wholly-owned German subsidiary, ParkerVision GmbH
(collectively “ParkerVision”, “we” or the
“Company”), is in the business of innovating
fundamental wireless technologies and products.
We have
designed and developed proprietary radio frequency
(“RF”) technologies and integrated circuits and license
those technologies to others for use in wireless communication
products. We have expended significant financial and other
resources to research and develop our RF technologies and to obtain
patent protection for those technologies in the United States of
America (“U.S.”) and certain foreign jurisdictions. We
believe certain patents protecting our proprietary
technologies have been broadly infringed by others, and therefore
the primary focus of our business plan is the enforcement of our
intellectual property rights through patent infringement litigation
and licensing efforts. We currently have patent enforcement actions
ongoing in various U.S. district courts against providers of mobile
handsets, smart televisions and other WiFi products and, in certain
cases, their chip suppliers for the infringement of a number of our
RF patents. We have made significant investments in developing and
protecting our technologies.
2. Liquidity and Going Concern
Our
accompanying condensed consolidated financial statements were
prepared assuming we would continue as a going concern, which
contemplates that we will continue in operation for the foreseeable
future and will be able to realize assets and settle liabilities
and commitments in the normal course of business for a period of at
least one year from the issuance date of these condensed
consolidated financial statements. These condensed 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
from operations in every year since inception and have utilized the
proceeds from the sales of debt and equity securities and
contingent funding arrangements with third parties to fund our
operations, including the cost of litigation. For the nine months
ended September 30, 2021, we incurred a net loss of approximately
$9.0 million and negative cash flows from operations of
approximately $6.9 million. At September 30, 2021, we had cash
and cash equivalents of approximately $0.8 million and an
accumulated deficit of approximately $430.1 million.
Additionally, a significant amount of future proceeds that we may
receive from our patent enforcement and licensing programs will
first be utilized to repay borrowings and legal fees and expenses
under our contingent funding arrangements. These circumstances
raise substantial doubt about our ability to continue to operate as
a going concern for a period of one year following the issue date
of these condensed consolidated financial statements.
For the
nine months ended September 30, 2021, we received aggregate net
proceeds from debt and equity financings of approximately $5.2
million and proceeds from the exercise of outstanding options and
warrants of approximately $0.9 million. We used a significant
portion of these proceeds to pay current obligations resulting in a
reduction in our accounts payable and accrued expenses of
approximately $4.1 million for the nine months ended September 30,
2021. Our current capital resources are not sufficient to meet our
short-term liquidity needs and we will be required to seek
additional capital.
Our
ability to meet our liquidity needs for the next twelve months is
dependent upon (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, (ii) our ability to control operating costs, and/or
(iii) our ability to obtain additional debt or equity financing, if
needed. We expect that proceeds received by us from patent
enforcement actions and technology licenses over the next twelve
months may not be sufficient to cover our working capital
requirements.
We
expect to continue to invest in the support of our patent
enforcement and licensing programs. The long-term continuation of
our business plan is dependent upon the generation of sufficient
revenues from our technologies and/or products to offset expenses
and contingent payment obligations. In the event that we do not
generate sufficient revenues, we will be required to obtain
additional funding through public or private debt or equity
financing or contingent fee arrangements and/or reduce operating
costs. Failure to generate sufficient revenues, raise additional
capital through debt or equity financings or contingent fee
arrangements, and/or reduce operating costs will have a material
adverse effect on our ability to meet our long-term liquidity needs
and achieve our intended long-term business
objectives.
3. Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements
for the period ended September 30, 2021 were prepared in accordance
with generally accepted accounting principles (“GAAP”)
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Operating results for the
three and nine months ended September 30, 2021, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2021, or future years. All normal and recurring
adjustments which, in the opinion of management, are necessary for
a fair statement of the consolidated financial condition and
results of operations have been included.
The
year-end condensed consolidated balance sheet data was derived from
audited financial statements for the year ended December 31,
2020. Certain information and
disclosures normally included in the notes to the annual financial
statements prepared in accordance with GAAP have been omitted from
these interim condensed consolidated financial statements.
These interim condensed consolidated financial statements should be
read in conjunction with our latest Annual Report on Form 10-K for
the year ended December 31, 2020 (“2020 Annual
Report”).
The
condensed consolidated financial statements include the accounts of
ParkerVision, Inc. and its wholly-owned German subsidiary,
ParkerVision GmbH, after elimination of all intercompany
transactions and accounts.
4.
Accounting Policies
There
have been no changes in accounting policies from those stated in
our 2020 Annual Report, other than as described below. We do not
expect any newly effective accounting standards to have a material
impact on our financial position, results of operations or cash
flows when they become effective.
We
adopted Accounting Standards Update (“ASU”) 2020-06,
“Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity” as of January 1, 2021. ASU 2020-06
simplifies accounting for convertible instruments, eliminating
separation accounting for certain embedded conversion features. We
used the modified retrospective method of adoption which allows for
application of the guidance to transactions outstanding at the
beginning of the fiscal year of adoption with the cumulative effect
of the change being recorded as an adjustment to beginning retained
earnings. Our adoption of ASU 2020-06 resulted in an increase to
our long-term debt of approximately $0.8 million, a decrease in
additional paid-in-capital of approximately $1.1 million, and an
adjustment to our beginning accumulated deficit of
$0.3 million resulting from the elimination of the previously
recognized beneficial conversion feature as a debt
discount.
5.
Revenue
We have
an active monitoring and enforcement program with respect to our
intellectual property rights that includes seeking appropriate
compensation from third parties that utilize or have utilized our
intellectual property without a license. As a result, we may
receive payments as part of a settlement or in the form of
court-awarded damages for a patent infringement dispute. We
recognize such payments as revenue in accordance with Accounting
Standards Codification (“ASC”) 606, “Revenue from
Contracts with Customers.”
During
the three and nine months ended September 30, 2021, we recognized
approximately $0.14 million in revenue from licensing and
settlement agreements with third parties for their use of our
technologies. Our performance obligations were satisfied, and
therefore revenue recognized, upon receipt of proceeds and
subsequent dismissal of all patent enforcement actions between the
parties.
6.
Loss per Common Share
Basic
loss per common share is determined based on the weighted-average
number of common shares outstanding during each period. Diluted
loss per common share is the same as basic loss per common share as
all common share equivalents are excluded from the calculation, as
their effect is anti-dilutive.
We have shares underlying outstanding options, warrants, unvested
restricted stock units (“RSUs”) and convertible notes
that were excluded from the computation of diluted loss per share
as their effect would have been anti-dilutive. These common share
equivalents at September 30, 2021 and 2020 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2021
|
|
2020
|
|
Options
outstanding
|
|
23,724
|
|
|
12,248
|
|
Warrants
outstanding
|
|
9,819
|
|
|
13,850
|
|
Unvested
RSUs
|
|
-
|
|
|
291
|
|
Shares
underlying convertible notes
|
|
20,757
|
|
|
23,807
|
|
|
|
54,300
|
|
|
50,196
|
|
|
|
|
|
|
|
7. Prepaid Expenses
Prepaid
expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December
31,
|
|
|
|
2021
|
|
2020
|
|
Prepaid
services
|
|
$
|
640
|
|
$
|
408
|
|
Prepaid
bonds for German statutory costs
|
|
|
-
|
|
|
142
|
|
Prepaid
insurance
|
|
|
32
|
|
|
21
|
|
Prepaid
licenses, software tools and support
|
|
|
19
|
|
|
11
|
|
Other
prepaid expenses
|
|
|
16
|
|
|
17
|
|
|
|
$
|
707
|
|
$
|
599
|
|
|
|
|
|
|
|
|
Prepaid
services at September 30, 2021 and December 31, 2020 include
approximately $0.6 million and $0.1 million, respectively of
consulting services paid in shares of stock or warrants to purchase
shares of stock in the future.
8. Intangible Assets
Intangible
assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December
31,
|
|
|
|
2021
|
|
2020
|
|
Patents
and copyrights
|
|
$
|
14,826
|
|
$
|
14,948
|
|
Accumulated
amortization
|
|
|
(12,939)
|
|
|
(12,778)
|
|
|
|
$
|
1,887
|
|
$
|
2,170
|
|
|
|
|
|
|
|
|
9. Leases
During
the nine months ended September 30, 2021, we entered into a
sublease agreement related to our Lake Mary office space. The
sublease is accounted for as an operating lease and is for the
remaining term of our original lease, through November 2022. Rental
income recognized of $0.02 million for the three and nine months
ended September 30, 2021, is included in “Other income”
in the accompanying condensed consolidated statements of
comprehensive loss.
10. Debt
Notes Payable
Related Party Note Payable
We have
an unsecured promissory note of approximately $0.7 million payable
to Sterne, Kessler, Goldstein, & Fox, PLLC
(“SKGF”), a related party, for outstanding unpaid fees
for legal services. Subsequent to September 30, 2021, SKGF agreed
to amend the note in order to extend the final balloon payment due
under the note from April 2022 to April 2023. The SKGF note, as
amended, will continue to accrue interest at a rate of 4% per
annum, requires repayments of principal and interest at a rate of
$10,000 per month and will extend the final balloon payment into
April 2023. We are currently in compliance with all the terms of
the note.
Secured Note Payable
Our secured note payable as of December 31, 2020 represented
default interest accrued related to a note payable to Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C (“Mintz”) for
outstanding fees and expenses. Additionally, as of December 31,
2020, we had approximately $3.1 million in accounts
payable to Mintz for outstanding fees and expenses. We
also had approximately $3.6 million in disputed legal fees and
expenses billed by Mintz that we treated as a loss contingency that
was not probable as of December 31, 2020 and accordingly, for which
we recognized no expense in the consolidated financial
statements. On March 29, 2021, we entered into an agreement
with Mintz to satisfy our outstanding obligations to Mintz.
Under the terms of the agreement, (i) Mintz waived all past
defaults on the note resulting in a reversal of previously accrued
interest, (ii) we paid Mintz a lump-sum payment
of $3.0 million in satisfaction of all outstanding
obligations including our accounts payable to Mintz and all
disputed and unrecorded billings, and (iii) Mintz agreed to a
significant reduction in future success fees that might be payable
to Mintz from patent-related proceeds.
Unsecured Notes Payable
Unsecured
notes payable at December 31, 2020 represented a Paycheck
Protection Program loan of approximately $0.2 million received in
May 2020. The loan was eligible for forgiveness provided that
(i) we used the loan proceeds exclusively for allowed costs
including payroll, employee group health benefits, rent and
utilities and (ii) employee and compensation levels were maintained
during the coverage period. We applied for loan forgiveness in
April 2021 and the loan was forgiven in June 2021. The forgiveness
of the loan was recognized as income and is included in
“Other income” in the accompanying condensed
consolidated statements of comprehensive loss for the three and
nine months ended September 30, 2021.
Convertible Notes
Our
convertible notes represent 5-year promissory notes that are
convertible, at the holders’ option, into shares of our
common stock at fixed conversion prices. Interest payments are made
on a quarterly basis and are payable, at our option, subject to
certain equity conditions, in either cash, shares of our common
stock, or a combination thereof. To date, all interest payments on
the convertible notes have been made in shares of our common stock.
We have recognized the convertible notes as debt in our condensed
consolidated financial statements. The fixed conversion prices of
certain of the notes were below the market value of our common
stock on the closing date resulting in the recognition of a
beneficial conversion feature that was recorded as a discount on
the convertible notes at the note inception date, with a
corresponding increase to additional paid in capital. Upon our
adoption of ASU 2020-06 on January 1, 2021, the beneficial
conversion feature was eliminated, resulting in an increase of $0.8
million to convertible debt and a cumulative adjustment to
beginning accumulated deficit of $0.3 million, representing the
discount amortization recognized prior to adoption of the new
standard (see Note 4).
We have the option to prepay the majority 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.
Convertible
notes payable at September 30, 2021 and December 31, 2020 consist
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
Principal
Outstanding as of
|
|
|
|
Conversion
|
|
Interest
|
|
|
|
September 30,
|
|
December
31,
|
|
Description
|
|
Rate
|
|
Rate
|
|
Maturity
Date
|
|
2021
|
|
2020
|
|
Convertible
notes dated September 10, 2018
|
|
$0.40
|
|
8.0%
|
|
September
7, 2023
|
|
$
|
200
|
|
$
|
600
|
|
Convertible
note dated September 19, 2018
|
|
$0.57
|
|
8.0%
|
|
September
19, 2023
|
|
|
425
|
|
|
425
|
|
Convertible
notes dated February/March 2019
|
|
$0.25
|
|
8.0%
|
|
February
28, 2024 to March 13, 2024
|
|
|
850
|
|
|
1,300
|
|
Convertible
notes dated June/July 2019
|
|
$0.10
|
|
8.0%
|
|
June 7,
2024 to July 15, 2024
|
|
|
340
|
|
|
340
|
|
Convertible
notes dated July 18, 2019
|
|
$0.08
|
|
7.5%
|
|
July
18, 2024
|
|
|
700
|
|
|
700
|
|
Convertible
notes dated September 13, 2019
|
|
$0.10
|
|
8.0%
|
|
September
13, 2024
|
|
|
50
|
|
|
50
|
|
Convertible
notes dated January 8, 2020
|
|
$0.13
|
|
8.0%
|
|
January
8, 2025
|
|
|
450
|
|
|
450
|
|
Total
principal balance
|
|
|
|
|
|
|
|
|
3,015
|
|
|
3,865
|
|
Less
Unamortized discount
|
|
|
|
|
|
|
|
|
-
|
|
|
847
|
|
|
|
|
|
|
|
|
|
$
|
3,015
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
nine months ended September 30, 2021, convertible notes with a face
value of $0.85 million were converted, at the option of the
holders, into 2,800,000 shares of our common stock and we
recognized interest expense of approximately $0.2 million related
to the contractual interest which we elected to pay in shares of
our common stock. For the nine months ended September 30, 2021, we
issued approximately 215,000 shares of our common stock as
interest-in-kind payments on our convertible notes.
At
September 30, 2021, we estimate our convertible notes have an
aggregate fair value of approximately $2.4 million and would be
categorized within Level 2 of the fair value
hierarchy.
Secured Contingent Payment Obligation
The following table provides a reconciliation of our secured
contingent payment obligation, measured at estimated fair market
value, for the nine months ended September 30, 2021 and the year
ended December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
September
30, 2021
|
|
Year
Ended
December
31, 2020
|
|
Secured
contingent payment obligation, beginning of period
|
|
$
|
33,057
|
|
$
|
26,651
|
|
Change
in fair value
|
|
|
2,883
|
|
|
6,406
|
|
Secured
contingent payment obligation, end of period
|
|
$
|
35,940
|
|
$
|
33,057
|
|
|
|
|
|
|
|
|
Our
secured contingent payment obligation represents the estimated fair
value of our repayment obligation to Brickell Key Investments, LP
(“Brickell”) under a February 2016 funding agreement,
as amended. Brickell is entitled to priority payments of 55% to
100% of proceeds received from all patent-related actions until
such time that Brickell has been repaid its minimum return. The
minimum return is determined as a multiple of the funded amount
that increases over time. The estimated minimum return due to
Brickell was approximately $47.2 million and $42.0 million as of
September 30, 2021 and December 31, 2020, respectively. 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 minimum return. The range of potential
proceeds payable to Brickell is discussed more fully in Note 11. As
of September 30, 2021, we are in compliance with our obligations
under this agreement.
We have
elected to measure our secured contingent payment obligation at its
estimated 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
11). The secured contingent payment obligation is remeasured to
fair value at each reporting period with changes recorded in the
condensed consolidated statements of comprehensive loss until the
contingency is resolved.
Unsecured Contingent Payment Obligations
The following table provides a reconciliation of our unsecured
contingent payment obligations, measured at estimated fair market
value, for the nine months ended September 30, 2021 and the year
ended December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
September
30, 2021
|
|
Year
EndedDecember 31, 2020
|
|
Unsecured
contingent payment obligations, beginning of period
|
|
$
|
5,222
|
|
$
|
-
|
|
Reclassification
of other liabilities
|
|
|
-
|
|
|
1,003
|
|
Issuance
of contingent payment rights
|
|
|
412
|
|
|
2,258
|
|
Change
in fair value
|
|
|
113
|
|
|
1,961
|
|
Unsecured
contingent payment obligations, end of period
|
|
$
|
5,747
|
|
$
|
5,222
|
|
|
|
|
|
|
|
|
Our unsecured contingent payment obligations represent amounts
payable to others from future patent-related proceeds including (i)
a termination fee due to a litigation funder and (ii) contingent
payment rights issued to accredited investors in connection with
equity financings (“CPRs”). We have elected to measure
these unsecured contingent payment obligations at their estimated
fair value based on probability-weighted estimated cash outflows,
discounted back to present value using a discount rate determined
in accordance with accepted valuation methods. The unsecured
contingent payment obligations will be remeasured to fair value at
each reporting period with changes recorded in the condensed
consolidated statements of comprehensive loss until the contingency
is resolved (see Note 11). During the nine months ended September
30, 2021, we received proceeds of $1.0 million from the sale of common stock with CPRs,
of which approximately $0.4 million was allocated to the CPRs. Our
aggregate maximum obligation under the unsecured contingent payment
obligations is $10.8 million as of September 30,
2021.
11. Fair Value Measurements
The
following tables summarize the fair value of our assets and
liabilities measured at fair value on a recurring basis as of
September 30, 2021 and December 31, 2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
Total
Fair Value
|
|
QuotedPricesin ActiveMarkets(Level
1)
|
|
SignificantOtherObservableInputs(Level
2)
|
|
SignificantUnobservableInputs(Level
3)
|
|
September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
contingent payment obligation
|
|
$
|
35,940
|
|
$
|
-
|
|
$
|
-
|
|
$
|
35,940
|
|
Unsecured
contingent payment obligations
|
|
|
5,747
|
|
|
-
|
|
|
-
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
Total
Fair Value
|
|
QuotedPricesin ActiveMarkets(Level
1)
|
|
SignificantOtherObservableInputs(Level
2)
|
|
SignificantUnobservableInputs(Level
3)
|
|
December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
contingent payment obligation
|
|
$
|
33,057
|
|
$
|
-
|
|
$
|
-
|
|
$
|
33,057
|
|
Unsecured
contingent payment obligations
|
|
$
|
5,222
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair values of our secured and unsecured contingent payment
obligations were estimated using a probability-weighted income
approach based on various cash flow scenarios as to the outcome of
patent-related actions both in terms of timing and amount,
discounted to present value using a risk-adjusted rate. We used a
risk-adjusted discount rate of 14.41% at September 30, 2021, based
on a risk-free rate of 0.41% as adjusted by 8% for credit risk and
6% for litigation inherent risk.
The
following table provides quantitative information about the
significant unobservable inputs used in the measurement of fair
value for both the secured and unsecured contingent payment
obligations at September 30, 2021, including the lowest and highest
undiscounted payout scenarios as well as a weighted average payout
scenario based on relative undiscounted fair value of each cash
flow scenario.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
Contingent Payment Obligation
|
|
Unsecured
Contingent Payment Obligations
|
|
Unobservable
Inputs
|
|
Low
|
|
Weighted
Average
|
|
High
|
|
Low
|
|
Weighted
Average
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
undiscounted cash outflows (in millions)
|
|
$0.0
|
|
$50.2
|
|
$76.8
|
|
$0.0
|
|
$8.1
|
|
$10.8
|
|
Duration
(in years)
|
|
0.3
|
|
2.5
|
|
3.3
|
|
1.3
|
|
2.5
|
|
3.3
|
|
Estimated
probabilities
|
|
0%
|
|
21%
|
|
25%
|
|
25%
|
|
25%
|
|
25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
evaluate the estimates and assumptions used in determining the fair
value of our contingent payment obligations each reporting period
and make any adjustments prospectively based on those evaluations.
Changes in any of these Level 3 inputs could result in a
significantly higher or lower fair value measurement.
12. Legal Proceedings
From
time to time, we are subject to legal proceedings and claims which
arise in the ordinary course of our business. These proceedings
include patent enforcement actions initiated by us against others
for the infringement of our technologies, as well as proceedings
brought by others against us, including proceedings at the Patent
Trial and Appeal Board of the U.S. Patent and Trademark Office
(“PTAB”).
The
majority of our litigation, including our PTAB proceedings, is
being paid for through contingency fee arrangements with our
litigation counsel as well as third-party litigation financing. In
general, litigation counsel is entitled to recoup on a priority
basis, from litigation proceeds, any out-of-pocket expenses
incurred. Following reimbursement of out-of-pocket expenses,
litigation counsel is generally entitled to a percentage of
remaining proceeds based on the terms of the specific arrangement
between us, counsel and our third-party litigation
funder.
We were
liable for costs assessed on infringement and validity cases in
Germany in which we did not prevail. A portion of this liability
was covered by bonds posted in Germany. As of September 30, 2021,
our bonds have been fully released and all outstanding statutory
court costs have been satisfied in full. We have no remaining
litigation or related liabilities in Germany.
ParkerVision v. Qualcomm (Middle District of Florida)
We have a patent infringement complaint pending in the Middle
District of Florida against Qualcomm Incorporated and Qualcomm
Atheros, Inc. (collectively
“Qualcomm”) seeking approximately $1.3 billion
in damages for infringement of four of our
patents (the “Qualcomm Action”). HTC
Corporation and HTC America, Inc. (collectively
“HTC”) were also defendants in this case
but we voluntarily dismissed our claims against HTC
and HTC dismissed their related counter-claims
against us in October 2020. Qualcomm has
pending counterclaims
against us for non-infringement and invalidity for
all patents in the case. The case was filed in May 2014
and stayed in February 2016 pending decisions in other cases,
including the appeal of a PTAB proceeding with regard to U.S.
patent 6,091,940 (“the ‘940 Patent”) asserted in
this case. In March 2017, the PTAB ruled in our favor
on three of the six petitions (the method
claims), ruled in Qualcomm’s favor on two of the
six petitions (the apparatus claims) and issued a split decision on
the claims covered in the sixth petition. In September
2018, the Federal Circuit upheld the
PTAB’s decision with regard to the ‘940 Patent
and, in January 2019, the court lifted the stay in this
case. In July 2019, the court issued an order that
granted our proposed selection of patent claims from four asserted
patents, including the ‘940 Patent, and denied
Qualcomm’s request to limit the claims and patents. The court
also agreed that we may elect to pursue accused products that were
at issue at the time the case was stayed, as well as new products
that were released by Qualcomm during the pendency of the
stay. In September 2019, Qualcomm filed a motion for
partial summary judgement in an attempt to exclude certain patents
from the case, including the ‘940 Patent. The
court denied this motion in January 2020. In April 2020,
the court issued its claim construction order in which the
court adopted our proposed construction for seven of
the ten disputed terms and adopted slightly modified
versions of our proposed construction for the remaining
terms. Due to the impact of COVID-19, a number of
the scheduled deadlines in this case were moved including the trial
commencement date which was rescheduled from December 2020 to May
2021. We are seeking $1.3 billion in royalties owed to
us by Qualcomm for its unauthorized use of our technology, based on
a report submitted by our damages expert in this case in October
2020. Such amount excludes additional amounts
requested by us for interest and enhanced damages for willful
infringement. Ultimately, the amount of damages, if
any, will be determined by a jury and the
court. Discovery was expected to close in
December 2020; however, the court allowed us to designate a
substitute expert due to medical issues with one of our experts in
the case. Accordingly, the close of discovery was
delayed approximately one month until January 2021. As a
result of these delays, the court rescheduled the trial
commencement date from May 3, 2021 to July 6,
2021. In March 2021, the court further delayed the trial
date citing backlog due to the pandemic, among other
factors. A new trial date has not yet been set although
the court indicated the case was unlikely to be tried before
November or December 2021. Fact and expert discovery in
this case are closed, expert reports have been submitted, and
summary judgement and Daubert briefings have been completed by the
parties. Joint pre-trial statements were submitted in
May 2021. In March 2021, the court granted Qualcomm’s motion
to strike certain of our 2020 infringement contentions. We
filed a motion to clarify the court’s order and in July 2021,
based on the court’s response to our motion to clarify, we
filed a joint motion for entry of a judgement of non-infringement
of our Patent No. 7,865,177 (“the ‘177 Patent”),
subject to appeal. A number of outstanding motions are
pending decisions by the court.
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 Inc.
(“Apple”), 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., Samsung Telecommunications America LLC,
and Samsung Semiconductor, Inc. (collectively
“Samsung”), and Qualcomm alleging infringement
of four of our patents. In February 2016, the district
court proceedings were stayed pending resolution of a corresponding
case filed at the International Trade Commission
(“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 and re-filed our claims against
LG in the District of New Jersey (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. In July 2019, the court issued
its claim construction order in which the court adopted our
proposed claim construction for two of
the six terms and the “plain and ordinary
meaning” on the remaining terms. In addition, the court
denied a motion filed by Apple for summary
judgment. Fact discovery has closed in this case
and a jury trial was scheduled to begin in August
2020. In March 2020, as a result of the impact of
COVID-19, the parties filed a motion requesting an extension of
certain deadlines in the case. In April 2020, the court
stayed this proceeding pending the outcome of the
Qualcomm Action.
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 four
patents previously asserted against LG in Florida (see ParkerVision
v. Apple and Qualcomm above). We elected to dismiss the case in
Florida and re-file in New Jersey as a result of a 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. Intel (Western District of Texas)
In
February 2020, we filed a patent infringement complaint in the
Western District of Texas against Intel Corporation
(“Intel”) alleging infringement of eight of our
patents. The complaint was amended in May 2020 to add two
additional patents. In June 2020, we requested that one of the
patents be dropped from this case and filed a second case in the
Western District of Texas that included this dismissed patent (see
ParkerVision v. Intel II
below). Intel’s response to our complaint was filed in June
2020 denying infringement and claiming invalidity of the patents.
Intel has also filed a motion to transfer venue which was denied by
the court. The court issued
its claim construction ruling in
January 2021 in which the majority of the claims were
decided in our favor. The case was scheduled for trial
beginning February 7, 2022. In April 2021, we filed an amended
complaint to include additional Intel chips and products, including
Wi-Fi devices to the complaint. The court suggested that, given the
number of patents at issue, the case would be separated into two
trials and, as a result of the added products, the first trial date
will be scheduled in June 2022. Based on discussions with the
court, we anticipate the second trial date will be scheduled to
begin several months following the first trial.
ParkerVision v. Intel II (Western District of Texas)
In June
2020, to reduce the number of claims in ParkerVision v. Intel, we filed a
second patent infringement complaint in the Western District of
Texas against Intel that included one patent that we voluntarily
dismissed from the original case. In July 2020, we amended our
complaint adding two more patents to the case. In May 2021, we
further amended our complaint to include additional Intel chips and
products, including Wi-Fi devices. Two claim construction hearings
were held and in July 2021, the court issued its claim construction
order in which the majority of the claim terms were construed in
our favor. Based on communications with the Court, the parties
submitted a case schedule setting forth a final pretrial conference
for October 2022, however this date may change dependent upon the
timing of the second trial in the Intel I case discussed
above.
Intel v. ParkerVision (PTAB)
Intel
filed petitions for Inter
Partes Review
(“IPR”) against U.S. patent 7,539,474 (“the
‘474 Patent”), U.S. patent 7,110,444 (“the
‘444 Patent”) and U.S. patent 8,190,108 (“the
‘108 Patent”), all of which are patents asserted in our
infringement cases against Intel. In January 2021, the PTAB issued
its decision to institute IPR proceedings for the ‘444 Patent
and the ‘474 Patent. An oral hearing was held on November 1,
2021 and final decisions from the PTAB on the ‘474 Patent and
the ‘444 Patent are expected by late January
2022.
In July
2021, the PTAB issued its decision to institute IPR proceedings for
the ‘108 Patent. We filed our response to this petition in
October 2021 and an oral hearing is scheduled for April 2022. A
final decision from the PTAB with respect to the ‘108 Patent
is expected by July 2022.
Additional Patent Infringement Cases
ParkerVision filed a number of additional patent cases in the
Western District of Texas in September and October 2020 including
cases against (i) TCL Industries Holdings Co., Ltd, a Chinese
company, TCL Electronics Holdings Ltd., Shenzhen TCL New Technology
Co., Ltd, TCL King Electrical Appliances (Huizhou) Co., Ltd., TCL
Moka Int’l Ltd. and TCL Moka Manufacturing S.A. DE C.V.
(collectively “TCL”), (ii) Hisense Co., Ltd. and
Hisense Visual Technology Co., Ltd (collectively
“Hisense”), a Chinese company, (iii) Buffalo Inc., a
Japanese company (“Buffalo”) and (iv) Zyxel
Communications Corporation, a Chinese multinational electronics
company headquartered in Taiwan,
(“Zyxel”). Each case alleges infringement of
the same ten patents by products
that incorporate modules containing certain Wi-Fi
chips manufactured by Realtek and/or MediaTek. Each
of the defendants have filed responses denying infringement and
claiming invalidity of the patents, among other
defenses.
In September 2021, we dismissed the cases against Buffalo and Zyxel
following satisfaction of the parties’ obligations under
settlement and license agreements entered into in May 2021 and
September 2021, respectively. The court held a Markman hearing on
October 27, 2021 for the remaining defendants, Hisense and TCL, and
issued its claim construction recommendations on October 29, 2021,
in which nearly all of the claim terms were decided in our favor.
The Hisense and TCL cases are expected to have a trial date in
December 2022.
In May 2021, we also filed a patent infringement case against LG
Electronics, a South Korean company, in the Western District of
Texas alleging infringement of the same ten patents.
TCL, et. al. v. ParkerVision (PTAB)
In May
2021, TCL, along with Hisense, filed petitions for Inter Partes Review (“IPR”) against U.S.
patent 7,292,835 (“the ‘835 Patent”) and the
‘444 Patent, both of which are asserted in the infringement
cases against these parties in the Western District of Texas. An
institution decision is expected from the PTAB in late November
2021.
13. Stock Authorization and Issuance
Stock Authorization
On September 28, 2021, our shareholders approved an amendment to
our amended and restated articles of incorporation to increase our
authorized common shares from 140 million to 150
million.
Stock and Warrant Issuances – Equity Based
Financings
Private Placements with Accredited Investors
In
January 2021, we entered into securities purchase agreements with
accredited investors for the sale of an aggregate of 2,976,430
shares of our common stock at a price of $0.35 per share for
aggregate proceeds of $1.0 million. The securities purchase
agreements include CPRs. Approximately $0.4 million of the proceeds
were allocated to unsecured contingent payment obligations based on
the initial fair value estimate of the CPRs (see Note 10). The
shares were registered for resale on a registration statement that
was declared effective on April 26, 2021 (File No.
333-255217).
In
March 2021, we entered into securities purchase agreements with
accredited investors for the sale of 3,230,942 shares of our common
stock and 1,619,289 warrants at a price of $1.29 per common share
for aggregate proceeds of approximately $4.2 million. The warrants
have an exercise price of $1.75 per share and expire in March 2026.
The shares, including the shares underlying the warrants, were
registered for resale on a registration statement that was declared
effective on April 26, 2021 (File No. 333-255217). We used $3.0
million of the proceeds from this transaction to satisfy our
obligations to Mintz (see Note 10).
Stock Issuances – Payment for Services
In January 2021, we amended our business consulting and retention
agreement with Chelsea Investor Relations to increase the
compensation for services over the remaining term and to extend the
term of the agreement through February 2024. As
consideration for the amended agreement, we issued 500,000 shares
of unregistered common stock in exchange for a
nonrefundable retainer for services valued at approximately
$0.33 million. The value of the stock issued is
being recognized as consulting expense over the term of the
agreement. The shares were registered for resale on a
registration statement that was declared effective on April 26,
2021 (File No. 333-255217).
In January 2021, we also issued 50,000 shares of our
unregistered common stock, valued at approximately
$0.03 million, as compensation for three months of shareholder
awareness services provided by a third party. In April
2021, we issued this third party an additional 50,000 shares of our
unregistered common stock, valued at approximately $0.07 million as
compensation for services over the remaining term of the agreement.
In June 2021, we issued an additional 100,000 shares of our
unregistered common stock, valued at approximately $0.12 million,
to this same third-party as a retainer for services over a one-year
term through May 31, 2022. The value of the shares issued will be
recognized as consulting expense over the term of the
agreement.
In April 2021, we issued 35,000 shares of our unregistered
common stock to a consultant for services over a six-month
term valued at approximately $0.04 million. The value
of the shares issued will be recognized as consulting expense over
the term of the agreement.
In
addition, from time to time, we issue restricted stock awards under
our approved equity plans to third party consultants as share-based
compensation. See “Non-Employee Compensation” in Note
14.
Common Stock Warrants
As of
September 30, 2021, we had outstanding warrants for the purchase of
up to 9.8 million shares of our common stock. The estimated grant
date fair value of these warrants of $2.8 million is included in
additional paid-in capital in our condensed consolidated balance
sheets. As of September 30, 2021, our outstanding warrants have an
average exercise price of $0.73 per share and a weighted average
remaining life of approximately 3.2 years.
14. Share-Based Compensation
There
has been no material change in the assumptions used to compute the
fair value of our equity awards, nor in the method used to account
for share-based compensation from those stated in our 2020 Annual
Report.
For the
three and nine months ended September 30, 2021, we recognized
share-based compensation expense of approximately $0.75 million and
$2.57 million, respectively. Share-based compensation is included
in selling, general and administrative expenses in the accompanying
condensed, consolidated statements of comprehensive
loss.
As of
September 30, 2021, there was $3.7 million of total unrecognized
compensation cost related to all non-vested share-based
compensation awards. The cost is expected to be recognized over a
weighted-average remaining life of approximately 1.25
years.
During
the nine months ended September 30, 2021, our board of directors
(“Board”) amended our 2019 Long-Term Incentive Plan
(“the 2019 Plan”) to increase the number of shares of
common stock reserved for issuance under the 2019 Plan from 12
million to 27 million shares. The Board also approved awards under
the 2019 Plan of 11.9 million nonqualified stock options to
executives and other key employees and an aggregate of 1.1 million
nonqualified stock options to non-employee directors. The options
are exercisable at $0.54 per share, vest in eight equal quarterly
installments commencing March 31, 2021, and expire on January 11,
2026.
Non-Employee Compensation
On March 9, 2021, we granted approximately 32,000 shares
under our 2019 Plan to a consultant for business communications
services over a 1-year term valued at approximately
$0.05 million. On August 10, 2021, we granted
150,000 shares under our 2019 Plan to a consultant for services
over a 1-year term valued at approximately $0.2 million. The value
of the shares issued will be recognized as consulting expense over
the terms of the agreements.
ITEM 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations