Forward-Looking Statements
We believe that it is important to communicate our future expectations to our
shareholders and to the public. This quarterly report contains forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, including, in particular, statements about our future plans,
objectives, and expectations contained in this Item. When used in this quarterly
report and in future filings by us with the Securities and Exchange Commission
("SEC"), the words or phrases "expects", "will likely result", "will continue",
"is anticipated", "estimated" or similar expressions are intended to identify
"forward-looking statements." Readers are cautioned not to place undue reliance
on such forward-looking statements, each of which speaks only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results and those
presently anticipated or projected, including the risks and uncertainties
identified in our annual report on Form 10-K for the fiscal year ended December
31, 2021 (the "2021 Annual Report") and in this Item 2 of Part I of this
quarterly report. Examples of such risks and uncertainties include general
economic and business conditions, competition, unexpected changes in
technologies and technological advances, the timely development and commercial
acceptance of new products and technologies, reliance on key suppliers, reliance
on our intellectual property, the outcome of our intellectual property
litigation and the ability to obtain adequate financing in the future. We have
no obligation to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect anticipated events or circumstances
occurring after the date of such statements.
Corporate Website
We announce investor information, including news and commentary about our
business, financial performance and related matters, SEC filings, notices of
investor events, and our press and earnings releases, in the investor relations
section of our website (http://ir.parkervision.com). Additionally, if
applicable, we webcast our earnings calls and certain events we participate in
or host with members of the investment community in the investor relations
section of our website. Investors and others can receive notifications of new
information posted in the investor relations section in real time by signing up
for email alerts and/or RSS feeds. Further corporate governance information,
including our governance guidelines, board of directors ("Board") committee
charters, and code of conduct, is also available in the investor relations
section of our website under the heading "Corporate Governance." The content of
our website is not incorporated by reference into this Quarterly Report or in
any other report or document we file with the SEC, and any references to our
website are intended to be inactive textual references only.
Overview
We have invented and developed proprietary radio frequency ("RF") technologies
and integrated circuits and license those technologies to third parties 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 and providers
of smart televisions and other WiFi products and, in certain cases, their
semiconductor suppliers, for the infringement of several of our RF patents. We
have made significant investments in developing and protecting our technologies,
the returns on which are dependent upon the generation of future revenues for
realization.
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Recent Events
Legal Proceedings
In November 2022, we filed patent infringement complaints in the Western
District of Texas against two Taiwanese semiconductor manufacturers, Realtek and
MediaTek. We also filed a second complaint against TCL in the Western District
of Texas for their alleged infringement of two additional patents.
On November 2, 2022, we entered into a patent license and settlement agreement
with Hisense on mutually-agreeable and confidential terms including a license
covering certain of our patents. In conjunction with this agreement, and upon
satisfaction of the parties' obligations under such agreement, we will file a
motion to dismiss our outstanding patent infringement proceedings against
Hisense in the Western District of Texas and Hisense will withdraw from its
pending IPR proceedings against us. Proceeds from this agreement will be used
to pay contingent out-of-pocket legal expenses.
In August 2022, we filed our opening brief appealing certain March 2022
decisions of the Florida district court in ParkerVision v. Qualcomm. The
district court granted a Qualcomm motion to strike and exclude opinions
regarding alleged infringement and validity issues which precluded the
presentation of infringement and validity opinions by both of our experts at
trial. The district court also granting Qualcomm's motion for summary judgment
ruling that Qualcomm does not infringe the three patents in the case. As a
result of the district court's summary judgment motion in favor of Qualcomm,
Qualcomm has the right to petition the court for its fees and costs. The court
has granted a Qualcomm motion to delay such a petition until 30 days following
the appellate court's decision. Qualcomm's response to our appellate brief is
expected to be filed in November 2022. No dates have yet been established for
any hearings at the appellate court in this matter.
In June 2022, the U.S. District Court in the Western District of Texas granted
our motion to amend our complaint in ParkerVision v. Intel to add willful
infringement based on information obtained in discovery. In August 2022, an
amended trial schedule was ordered moving the trial commencement date from
December 5, 2022 to February 6, 2023 in order to accommodate time needed for
additional discovery and related items.
Sale of Convertible Notes
In May, June and August 2022, we received proceeds of approximately $1.7 million
from the sale of five-year convertible notes to accredited investors, including
a $0.1 million note to one of our directors. 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.
Liquidity and Capital Resources
We have incurred significant losses from operations and negative operating cash
flows in every year since inception, largely as a result of our significant
investments in developing and protecting our intellectual property, and have
utilized the proceeds from 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, 2022, we incurred a net loss of
approximately $4.5 million and incurred negative cash flows from operations of
approximately $2.4 million. At September 30, 2022, we had cash and cash
equivalents of approximately $0.3 million and an accumulated deficit of
approximately $437.9 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 our condensed consolidated financial
statements.
We used cash for operations of approximately $2.4 million and $6.9 million for
the nine months ended September 30, 2022 and 2021, respectively. The decrease
in cash used for operations from 2021 to 2022 is primarily due to the use of
approximately $4.1 million in cash for the reduction of accounts payables and
accrued expenses during the nine months ended September 30, 2021, as compared to
a $0.3 million increase in accounts payable and accrued expenses during the nine
months ended September 30, 2022. For the nine months ended September 30, 2022,
we received aggregate net proceeds from the sale of debt and equity securities,
including the exercise of outstanding options and warrants, of
approximately $1.7 million compared to approximately $6.1 million in proceeds
received for the nine months ended September 30, 2021. We repaid
approximately $0.07 million in debt obligations during each of the nine months
ended September 30, 2022 and 2021.
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Patent enforcement litigation is costly and time-consuming and the outcome is
difficult to predict. We expect to continue to invest in the support of our
patent enforcement and licensing programs. Furthermore, we expect that revenue
generated from patent enforcement actions and/or technology licenses in the
remainder of 2022, if any, after deduction of payment obligations to third-party
litigation funders, legal counsel, and other investors, will not be sufficient
to cover our operating expenses. Therefore, our current capital resources are
not sufficient to meet our short-term liquidity needs and we may be required to
seek additional capital.
Our ability to meet both our short-term and long-term liquidity needs, including
our debt repayment obligations, 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 to third-party litigation funders, legal counsel, and other
investors; (ii) our ability to control operating costs, and (iii) our ability to
raise additional capital from the sale of debt or equity securities or other
financing arrangements. 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 our ability to achieve
our intended long-term business objectives.
Financial Condition
Our negative working capital increased approximately $1.63 million from December
31, 2021 to September 30, 2022. This increase in negative working capital is
primarily the result of cash used in operations during the nine months ended
September 30, 2022, along with an increase in current liabilities from the
reclassification of $0.6 million of convertible notes due in September 2023 from
long-term to current liabilities.
Our long-term liabilities remained consistent from December 31, 2021 to
September 30, 2022, as the issuance of $1.7 million of convertible notes was
offset by a $0.9 million decrease in the fair value of our contingent payment
obligations and the reclassification of $0.6 million of convertible notes due in
September 2023 from long-term to current liabilities.
Results of Operations for Each of the Three and Nine Months Ended September 30,
2022 and 2021
Revenue and Cost of Sales
We reported no licensing revenue for the three or nine-month periods ended
September 30, 2022. Licensing revenue was $0.14 million for the three and nine
months ended September 30, 2021. We entered into patent licensing and
settlement agreements with Buffalo, Inc. ("Buffalo") and Zyxel Communications
Corporation ("Zyxel") in May 2021 and September 2021, respectively. We
recognized revenue from these contracts during the three and nine months ended
September 30, 2021 when the parties' performance obligations were met. The
revenue from these agreements was fully offset against out-of-pocket expenses,
included in selling, general and administrative expenses, incurred under our
contingent fee agreements and therefore did not impact our cash flows. Cost of
sales consists of amortization expense related to the patents covered under
license agreements reached during the year ended December 31, 2021. We
anticipate recognizing revenue, along with offsetting contingent legal expenses,
in the fourth quarter of 2022 from our recent patent license and settlement
agreement with Hisense. Although we anticipate additional revenue to result in
2023 and beyond from our patent enforcement actions, the amount and timing is
highly unpredictable and there can be no assurance that we will achieve our
anticipated results.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses consist primarily of litigation
fees and expenses, personnel and related costs, including share-based
compensation, for executive, Board, finance and accounting and technical support
personnel for our patent enforcement program, and costs incurred for insurance
and outside professional fees for accounting, legal and business consulting
services.
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Our selling, general and administrative expenses decreased by approximately $0.3
million, or 17.1%, during the three months ended September 30, 2022 when
compared to the same period in 2021. This is primarily the result of a $0.4
million decrease in litigation fees and expenses.
Our selling, general and administrative expenses decreased by approximately $0.9
million, or 14.5%, during the nine months ended September 30, 2022 when compared
to the same period in 2021. This is primarily the result of a $0.3 million
decrease in share-based compensation for the comparable periods and a $0.5
million decrease in litigation fees and expenses.
The decrease in our share-based compensation for the nine-month period ended
September 30, 2022 is the result of share-based compensation expense attributed
to restricted stock units and nonqualified stock options awarded to executives,
key employees and nonemployee directors in 2019 and 2020 being fully recognized
as of December 31, 2021. As of September 30, 2022, we had $0.8 million of total
unrecognized compensation cost related to all non-vested share-based
compensation awards that is expected to be recognized over a period of
approximately 0.3 years.
The decrease in litigation fees and expenses is the result of contingent
expenses recognized in 2021 in conjunction with the licensing proceeds from
Buffalo and Zyxel, as well as decreased expenses following the Qualcomm summary
judgment decision in March 2022.
Change in Fair Value of Contingent Payment Obligations
We have elected to measure our secured and unsecured contingent payment
obligations at fair value which is based on significant unobservable inputs. We
estimated the fair value of our secured contingent payment obligations using a
probability-weighted income approach based on the estimated present value of
projected future cash outflows using a risk-adjusted discount rate. Increases or
decreases in the significant unobservable inputs could result in significant
increases or decreases in fair value. Generally, changes in fair value are a
result of changes in estimated amounts and timing of projected future cash flows
due to increases in funded amounts, passage of time, and changes in the
probabilities based on the status of the funded actions.
For the nine months ended September 30, 2022, we recorded an aggregate decrease
in the fair value of our secured and unsecured contingent payment obligations of
approximately $0.9 million, compared to an increase of approximately $3.0
million for the nine months ended September 30, 2021. The change in fair value
for the nine months ended September 30, 2022 was impacted by a sharp increase in
the risk-free interest rate used in the calculation as a result of the Federal
Reserve ending bond purchases and implementing multiple rate increases during
2022, resulting in a $3.6 million decrease in the aggregate fair value of our
secured and unsecured contingent payment obligations. The decrease resulting
from the interest rate changes is partially offset by increases resulting from
changes in the estimated amounts and timing of projected future cash flows due
to changes in probabilities and time frames based on the status of various
patent infringement actions.
Off-Balance Sheet Transactions, Arrangements and Other Relationships
As of September 30, 2022, we had outstanding warrants to purchase approximately
10.3 million shares of our common stock. The estimated grant date fair value of
these warrants of approximately $3.2 million is included in shareholders'
deficit in our condensed consolidated balance sheets. The outstanding warrants
have a weighted average exercise price of $0.75 per share and a weighted average
remaining life of approximately 2.3 years.
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Critical Accounting Policies
There have been no changes in accounting policies from those stated in our 2021
Annual Report. 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.
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PARKERVISION, INC. 