*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on March 30, 2016.
*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on March 30, 2016.
*Adjusted to reflect the impact of the 1:10 reverse stock split that became effective on March 30, 2016.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 and 2013
1.
THE COMPANY AND NATURE OF BUSINESS
We were incorporated under the laws of the state of Florida on August 22, 1989 and currently operate in a single reportable segment - wireless technologies and products. We are in the business of innovating fundamental wireless technologies. We design, develop and market our proprietary radio frequency (“RF”) technologies and products for use in wireless communication products and applications. In addition, we offer engineering consulting and design services, for a negotiated fee, to assist customers in developing and testing prototypes and/or products incorporating wireless technologies.
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.
2.
LIQUIDITY AND GOING CONCERN
The accompanying financial statements as of and for the year ended December 31, 2015 were prepared assuming we would continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liabilities and commitments in the normal course of business. These 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 sales of our equity securities to fund our operations. For the year ended December 31, 2015, we incurred a net loss of approximately $17.1 million and negative cash flows from operations of approximately $11.7 million. At December 31, 2015, we had an accumulated deficit of approximately $330.7 million and our current liabilities exceeded our current assets by approximately $1.7 million.
We implemented a number of measures in 2015 and 2016 to reduce our operating expenses and improve our liquidity position. In June 2015, we implemented a reduction in staff which resulted in a one-time charge of approximately $0.3 million to our operating expenses for termination benefits and a decrease in our annualized payroll costs of approximately $2.6 million. Also in June 2015, we entered into a fully contingent funding arrangement with outside counsel for our ongoing patent infringement litigation against Qualcomm, HTC and Samsung, thereby eliminating nearly all ongoing litigation fees and expenses in that case. In addition, during 2015, we began transitioning the majority of our patent prosecution and defense activities from outside to in-house counsel which is expected to significantly reduce our outside legal fees.
In January 2016, we sold unregistered common stock to an accredited investor in a private placement transaction for $1 million (see Note 10). In February 2016, we converted approximately $0.8 million in accounts payable to a long-term note payable (see Note 16). In addition, in February and March 2016, we received an aggregate of $11 million in funding from a litigation funding party, $10 million of which is restricted for payment of legal fees and expenses in connection with patent-related proceedings, including the ITC action filed in December 2015. The remaining $1 million from the funding party is available for general working capital purposes (See Note 16). The funding party also has a first right to provide additional funds, including, specifically, the right to fund up to $2 million with respect to additional identified patent enforcement actions that might be taken by us
Despite these reductions in our operating costs, our ability to meet our operating costs for 2016 is dependent upon our ability to (i) successfully negotiate licensing agreements for the use of our technologies by others and/or (ii) our ability to develop, market and sell existing and new products. We expect that revenue generated from patent enforcement actions, technology licenses and/or the sale of products in 2016 may not be sufficient to cover our operating expenses. In addition, revenues generated from patent-related activities will be subject to contingent payments to third-parties. In the event we do not generate sufficient revenues to cover our operational costs and contingent repayment obligations, we will be required to use available working capital. Our current capital resources are not sufficient to support our liquidity requirements through 2016 and additional cost containment measures, if implemented, may jeopardize our operations and future growth plans. These circumstances raise substantial doubt about our ability to continue to operate as a going concern.
We expect to continue to invest in patent prosecution and enforcement, product development, and sales, marketing, and customer support for our technologies and products. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from our technologies and/or products to offset expenses and contingent payment obligations. In the event that we do not generate sufficient revenues, we will be required to obtain additional funding through public or private debt or equity financing or contingent fee arrangements and/or reduce operating costs. Failure to generate sufficient revenues, raise additional capital through debt or equity financings or contingent fee arrangements, and/or reduce operating costs could have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business objectives.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our financial statements are prepared in accordance with generally accepted accounting principles. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. All references in these financial statements to number of shares of common stock, price per share and weighted average shares of common stock have been adjusted to reflect the one-for-ten reverse stock split that went into effect on March 30, 2016 (see Note 16) on a retroactive basis for all periods presented, unless otherwise noted.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles 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 the volatility, forfeiture rate 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 and 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.
Available-for-Sale Securities
Available-for-sale securities are intended to be held for indefinite periods of time and are not intended to be held to maturity.
These securities are recorded at fair value and any unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other comprehensive loss until realized. The tax effect of our unrealized holding gains and losses is zero for each of the years ended December 31, 2015, 2014, and 2013 due to the existence of a full valuation allowance.
Our available-for-sale securities at December 31, 2015 and 2014 consisted of mutual funds that invest primarily in short-term municipal securities with an average effective maturity of one year or less. All dividends and realized gains are recognized as other income as earned and immediately reinvested. The Company has determined that the fair value of its available-for-sale securities fall within Level 1 in the fair value hierarchy (See Note 15).
Inventory
Inventory is stated at the lower of standard cost or estimated net realizable value. Standard cost approximates actual cost as determined under the first-in, first-out method. 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
|
Tooling
|
3 years
|
Leasehold improvements
|
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 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.
Long-lived assets to be sold are classified as held for sale in the period in which there is an approved plan for sale of the assets within one year, and it is unlikely that the plan will be withdrawn or changed. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less estimated costs to sell.
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.
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, net of estimated forfeitures, as compensation expense over the requisite service periods of the related awards. We estimate the fair value of each equity award using the Black-Scholes option valuation model or the Monte Carlo simulation fair value model for awards that contain market conditions. These valuation models require the use of highly subjective assumptions and estimates including (i) how long employees will retain their stock options before exercising them, (ii) the volatility of our common stock price over the expected life of the equity award, and (iii) the rate at which equity awards will ultimately be forfeited by the recipients. Such estimates, and the basis for our conclusions regarding such estimates, are outlined in detail in Note 9. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
Revenue Recognition
We recognize revenue when there is persuasive evidence of an arrangement, the amounts are fixed and determinable, and the collectibility of the resulting receivable is reasonably assured.
Research and Development Expenses
Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third party contractors, prototype expenses, maintenance costs for software development tools, depreciation, amortization, and an allocated portion of facilities costs.
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.
Options and warrants to purchase 1,223,001, 769,620, and 888,873 shares of common stock were outstanding at December 31, 2015, 2014, and 2013, respectively. In addition, unvested RSUs representing 417, 218,415, and 188,238 shares of common stock were outstanding at December 31, 2015, 2014, and 2013, respectively. These options, warrants and RSUs were excluded from the computation of diluted loss per share as their effect would have been anti-dilutive.
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 balance sheets.
Income Taxes
The provision for income taxes is based on loss before taxes as reported in the accompanying 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 bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. 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.
We utilize the short-cut method for establishing the historical pool of windfall tax benefits related to employee share-based compensation. We do not recognize deferred tax assets with regard to the excess of tax over book stock compensation until the tax deductions actually reduce current taxes payable at which time the tax benefit would be recorded as an increase in additional paid-in-capital.
Recent Accounting Pronouncements
In November 2015, the
Financial Accounting Standards Board (“FASB”)
issued
Accounting Standards Update (“ASU”)
2015-17, “
Income Taxes: Balance Sheet Classification of Deferred Taxes (Topic 740),” which simplifies the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for interim and annual periods in fiscal years beginning after December 15, 2016 and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. We are currently evaluating the impact of adoption on our consolidated
financial statements.
We do not expect this standard to have a material impact on our reported results of operations or financial position.
In July 2015, FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out method by prescribing inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for public companies' annual periods, including interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2015-11 to have a material effect on our financial position, results of operations or cash flows.
In August 2014, FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for interim and annual periods beginning after December 15, 2016 and earlier adoption is permitted. We are currently assessing the impact of this update on future discussions of our liquidity position in our financial statements and have not early adopted ASU 2014-15.
4.
INVENTORIES
Inventories consisted of the following at December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Work-in-process
|
|
$
|
117,045
|
|
|
$
|
66,468
|
|
Finished goods
|
|
|
43,731
|
|
|
|
0
|
|
Total inventories
|
|
$
|
160,776
|
|
|
$
|
66,468
|
|
5.
PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets consisted of the following at December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Prepaid insurance
|
|
$
|
116,755
|
|
|
$
|
530,967
|
|
Other current assets
|
|
|
105,615
|
|
|
|
281,610
|
|
|
|
$
|
222,370
|
|
|
$
|
812,577
|
|
6.
PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of the following at December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Equipment and software
|
|
$
|
8,269,840
|
|
|
$
|
8,273,074
|
|
Tooling
|
|
|
93,890
|
|
|
|
224,000
|
|
Leasehold improvements
|
|
|
925,679
|
|
|
|
925,679
|
|
Furniture and fixtures
|
|
|
502,396
|
|
|
|
502,396
|
|
|
|
|
9,791,805
|
|
|
|
9,925,149
|
|
Less accumulated depreciation and amortization
|
|
|
(9,346,262
|
)
|
|
|
(9,292,065
|
)
|
|
|
$
|
445,543
|
|
|
$
|
633,084
|
|
Depreciation expense related to property and equipment was $187,653, $156,258, and $174,444 in 2015, 2014, and 2013, respectively.
The cost of our property and equipment includes office and engineering equipment purchased under capital lease agreements totaling $291,873 and $138,323 at December 31, 2015 and 2014, respectively. Depreciation expense includes depreciation related to capital leases of approximately $49,804, $31,794, and $28,748 for the periods ended December 31, 2015, 2014, and 2013, respectively. Accumulated depreciation included accumulated depreciation related to capital leases as of December 31, 2015 and 2014 of $169,252 and $119,448, respectively.
Our capital leases have original terms of one to three years with aggregate monthly payments of approximately $20,000 and an approximate annual implicit interest rate of 15.4%. The principal payments for these capital leases are reflected as cash outflows from financing activities in the accompanying statements of cash flows.
7.
INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 2015 and 2014:
|
2015
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Value
|
|
Patents and copyrights
|
$
|
20,309,630
|
|
|
$
|
12,734,697
|
|
|
$
|
7,574,933
|
|
Prepaid licensing fees
|
|
574,000
|
|
|
|
574,000
|
|
|
|
0
|
|
|
$
|
20,883,630
|
|
|
$
|
13,308,697
|
|
|
$
|
7,574,933
|
|
|
2014
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Value
|
|
Patents and copyrights
|
$
|
19,616,477
|
|
|
$
|
11,613,839
|
|
|
$
|
8,002,638
|
|
Prepaid licensing fees
|
|
574,000
|
|
|
|
574,000
|
|
|
|
0
|
|
|
$
|
20,190,477
|
|
|
$
|
12,187,839
|
|
|
$
|
8,002,638
|
|
Periodically, we evaluate the recoverability of our intangible assets and take into account events or circumstances that may warrant revised estimates of useful lives or that may indicate impairment exists (“Triggering Event”). Based on our cumulative net losses and negative cash flows from operations to date, we assess our working capital needs on an annual basis. This annual assessment of our working capital is considered to be a Triggering Event for purposes of evaluating the recoverability of our intangible assets. As a result of our evaluations at December 31, 2015 and 2014, we determined that no impairment exists with regard to our intangible assets.
Patent costs represent legal and filing costs incurred to obtain patents and trademarks for product concepts and methodologies that we have developed. Capitalized patent costs are amortized over the estimated lives of the related patents, ranging from fifteen to twenty years. Prepaid licensing fees represent costs incurred to obtain licenses for use of certain technologies in future products. Prepaid license fees are amortized over their estimated economic lives, generally two to five years. Amortization expense for the years ended December 31, 2015, 2014, and 2013 is as follows:
|
|
|
|
Amortization Expense
|
|
|
|
Weighted average estimated life (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and copyrights
|
|
|
17
|
|
|
$
|
1,120,858
|
|
|
$
|
1,216,703
|
|
|
$
|
1,067,698
|
|
Prepaid licensing fees
|
|
|
2
|
|
|
|
0
|
|
|
|
6,548
|
|
|
|
10,000
|
|
Total amortization
|
|
|
|
|
|
$
|
1,120,858
|
|
|
$
|
1,223,251
|
|
|
$
|
1,077,698
|
|
Future estimated amortization expense for intangible assets that have remaining unamortized amounts as of December 31, 2015 are as follows:
2016
|
|
$
|
1,128,036
|
|
2017
|
|
|
1,124,954
|
|
2018
|
|
|
1,051,272
|
|
2019
|
|
|
820,527
|
|
2020
|
|
|
573,346
|
|
2021 and thereafter
|
|
|
2,876,798
|
|
Total
|
|
$
|
7,574,933
|
|
8.
INCOME TAXES AND TAX STATUS
Our net losses before income taxes for the years ended December 31, 2015, 2014, and 2013 are entirely from domestic operations. A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% for the years ended December 31, 2015, 2014, and 2013 is as follows:
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Tax benefit at statutory rate
|
|
$
|
(5,805,502
|
)
|
|
|
(8,013,445
|
)
|
|
|
(9,476,580
|
)
|
State tax benefit
|
|
|
(597,625
|
)
|
|
|
(824,913
|
)
|
|
|
(975,530
|
)
|
Increase in valuation allowance
|
|
|
6,482,062
|
|
|
|
8,870,098
|
|
|
|
10,648,966
|
|
Research and development credit
|
|
|
(19,363
|
)
|
|
|
(186,906
|
)
|
|
|
(299,044
|
)
|
Other
|
|
|
(59,572
|
)
|
|
|
155,166
|
|
|
|
102,188
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
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, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Gross deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
108,627,053
|
|
|
$
|
102,317,929
|
|
Research and development credit
|
|
|
7,825,090
|
|
|
|
7,805,727
|
|
Stock compensation
|
|
|
3,477,737
|
|
|
|
3,364,997
|
|
Patents and other
|
|
|
1,999,975
|
|
|
|
1,904,532
|
|
Fixed assets
|
|
|
104,895
|
|
|
|
111,397
|
|
Accrued liabilities
|
|
|
47,713
|
|
|
|
81,987
|
|
Deferred rent
|
|
|
19,574
|
|
|
|
68,396
|
|
Deferred revenue
|
|
|
7,868
|
|
|
|
0
|
|
Capital loss carry-forward
|
|
|
7,466
|
|
|
|
7,241
|
|
Charitable contributions
|
|
|
11,250
|
|
|
|
9,375
|
|
Inventory
|
|
|
23,282
|
|
|
|
3,912
|
|
|
|
|
122,151,903
|
|
|
|
115,675,493
|
|
Less valuation allowance
|
|
|
(122,151,903
|
)
|
|
|
(115,675,493
|
)
|
Net deferred tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
No current or deferred tax provision or benefit was recorded for 2015, 2014, or 2013 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.
At December 31, 2015, we had cumulative NOL, research and development (“R&D”) tax credit carry-forwards and capital loss carry-forwards for income tax purposes of $295,585,142, $7,825,090 and $19,910 respectively, which expire in varying amounts from 2018 through 2034. The cumulative NOL carry-forward is net of $13,432,293 in carry-forwards from 1993 through 1997 which expired unused from 2008 through 2012. The NOL carry-forward for income tax purposes includes $2,260,692 related to windfall tax benefits from the exercise of share-based compensation awards for which benefit will be recognized as an adjustment to equity rather than a decrease in earnings if realized. The cumulative R&D tax credit carry-forward is net of $496,329 in credits from 1995 through 1997 that expired unused from 2010 through 2012.
Our ability to benefit from the our tax credit carry-forwards could be limited under certain provisions of the Internal Revenue Code if our ownership changes by 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, 2015 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 2015 tax years.
At December 31, 2015, we had an unrecognized tax benefit of approximately $1.4 million. A reconciliation of the amount recorded for unrecognized tax benefits for the years ended December 31, 2015, 2014, and 2013 is as follows:
|
|
For the years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Unrecognized tax benefits – beginning of year
|
|
$
|
1,369,614
|
|
|
|
1,369,614
|
|
|
|
1,369,614
|
|
Gross increases – tax positions in prior period
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Change in Estimate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unrecognized tax benefits – end of year
|
|
$
|
1,369,614
|
|
|
|
1,369,614
|
|
|
|
1,369,614
|
|
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. Approximately $0.47 million, net of tax effect, of the unrecognized tax benefit is related to excess tax benefits related to share-based compensation which would be recorded as an adjustment to equity rather than a decrease in earnings, if reversed.
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, 2015, 2014, and 2013, we did not incur any income tax-related interest income, expense or penalties.
9.
SHARE-BASED COMPENSATION
We did not capitalize any expense related to share-based payments. The following table presents share-based compensation expense included in our statements of comprehensive loss for the years ended December 31, 2015, 2014, and 2013, respectively:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Research and development expense
|
|
$
|
235,138
|
|
|
$
|
1,076,655
|
|
|
$
|
1,594,603
|
|
Sales and marketing expense
|
|
|
47,934
|
|
|
|
211,661
|
|
|
|
327,199
|
|
General and administrative expense
|
|
|
916,262
|
|
|
|
3,239,916
|
|
|
|
5,009,636
|
|
Total share-based expense
|
|
$
|
1,199,334
|
|
|
$
|
4,528,232
|
|
|
$
|
6,931,438
|
|
For the year ended December 31, 2015, total share based compensation expense included
$97,811
representing the aggregate fair value of 24,821 shares withheld by us from the distribution of employee share-based compensation awards for payment of employee payroll taxes.
As of December 31, 2015, there was $177,755 of total unrecognized compensation cost, net of estimated forfeitures, related to all non-vested share-based compensation awards. That cost is expected to be recognized over a weighted-average period of approximately 2 years.
Stock Incentive Plans
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 appreciation rights, restricted share awards, stock bonuses and various stock benefits or cash. Upon shareholder approval of amendments to our 2011 Long-Term Incentive Equity Plan on June 17, 2014, the 2000 Plan was amended such that no further awards may be granted under this 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 appreciation rights, restricted share 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, 2015, 994 shares of common stock were available for future grants.
2011 Long-Term Incentive Equity Plan
We adopted a long-term incentive equity plan in September 2011 that provided for the grant of stock-based awards to employees, officers, directors and consultants, not to exceed 500,000 shares of common stock. On June 17, 2014, shareholders approved amendments to the September 2011 plan increasing the shares available in the plan by 700,000 shares and clarifying certain limitations on exchanges of outstanding awards (as amended, the “2011 Plan”). The 2011 Plan provides for benefits in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted share 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, 2015, 536,949 shares of common stock were available for future grants.
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 consultants. 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 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 consultants, the fair value is recognized based on the closing price of our common stock on each vesting date.
Plan-Based 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, 2015:
|
|
Non-vested Shares
|
|
|
|
Shares
|
|
|
Weighted-Average Grant-Date
Fair Value
|
|
Non-vested at beginning of year
|
|
|
111,415
|
|
|
$
|
25.40
|
|
Granted
|
|
|
53,741
|
|
|
|
3.10
|
|
Vested
|
|
|
(157,922
|
)
|
|
|
17.60
|
|
Forfeited
|
|
|
(6,817
|
)
|
|
|
28.30
|
|
Non-vested at end of year
|
|
|
417
|
|
|
$
|
31.30
|
|
The total fair value of RSAs and RSUs vested under the Stock Plans for the year ended December 31, 2015 is $558,603.
Non-Plan RSAs and RSUs
RSAs and RSUs granted outside the Stock Plans represent awards issued as payment for services to consultants. The shares underlying these non-plan awards are unregistered.
|
|
Non-vested Shares
|
|
|
|
Shares
|
|
|
Weighted-Average Grant-Date Fair Value
|
|
Non-vested at beginning of year
|
|
|
107,000
|
|
|
$
|
31.00
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Vested
|
|
|
(32,000
|
)
|
|
|
12.40
|
|
Forfeited
|
|
|
(75,000
|
)
|
|
|
39.00
|
|
Non-vested at end of year
|
|
|
0
|
|
|
$
|
0
|
|
Compensation cost related to the vesting of non-plan RSAs and RSUs was approximately $220,800, $819,000, and $1,912,000 for the years ended December 31, 2015, 2014, and 2013 respectively, and is included in general and administrative expense in the table of share-based compensation expense shown above.
Non-plan RSAs and RSUs included 75,000 performance-based RSUs granted in November 2013 to consultants. These RSUs had vesting conditions based on achievement of certain market conditions, measured based on the closing price of our common stock during the term of the consulting agreements. The market conditions were not met and these RSUs expired, unvested on December 31, 2015.
Stock Options and Warrants
Stock options are issued as incentive compensation to executives, employees, and non-employee directors as well as payment for services to consultants. In addition, we have granted warrants to investors in connection with securities offerings. Stock options and warrants are generally granted with exercise prices at or above fair market value of the underlying shares at the date of grant.
Plan-Based Options
Options for employees, including executives and non-employee directors, are generally granted under the Stock Plans. The following table presents a summary of option activity under the Stock Plans for the year ended December 31, 2015:
|
|
Shares
|
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining
Contractual Term
|
|
Aggregate Intrinsic Value ($)
|
|
Outstanding at beginning of year
|
|
|
623,700
|
|
|
$
|
22.30
|
|
|
|
|
|
Granted
|
|
|
60,000
|
|
|
|
1.80
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Forfeited
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Expired
|
|
|
(31,916
|
)
|
|
|
73.30
|
|
|
|
|
|
Outstanding at end of year
|
|
|
651,784
|
|
|
|
17.90
|
|
3.39 years
|
|
$
|
31,500
|
|
Vested and expected to vest at end of year
|
|
|
582,112
|
|
|
$
|
19.60
|
|
3.03 years
|
|
$
|
0
|
|
The weighted average per share fair value of option shares granted during the years ended December 31, 2015, 2014, and 2013 was $1.32, $11.30, and $25.30, respectively. The total fair value of option shares vested during the years ended December 31, 2015, 2014, and 2013 was $482,652, $3,069,131, and $3,285,859, respectively.
The fair value of options granted under the Stock Plans 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.
The fair value of option grants under the Stock Plans for the years ended December 31, 2015, 2014, and 2013, respectively, was estimated using the Black-Scholes option-pricing model with the following assumptions:
|
Year ended December 31,
|
|
2015
|
|
2014
|
|
2013
|
Expected option term
1
|
5 years
|
|
6 years
|
|
5 to 6 years
|
Expected volatility factor
2
|
97.12%
|
|
106.40%
|
|
97.9% to 103.7%
|
Risk-free interest rate
3
|
1.66%
|
|
1.90%
|
|
0.8% to 1.8%
|
Expected annual dividend yield
|
0%
|
|
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.
|
The aggregate intrinsic value of plan-based options exercised during 2015, 2014, and 2013 was $0, $1,081,495, and $648,433, respectively.
Non-Plan Options and Warrants
Options and warrants granted outside the Stock Plans represent options issued as payment for services to consultants and warrants issued in connection with offerings of securities. As of December 31, 2015, all outstanding non-plan options and warrants have been registered by us on a registration statement. The following table presents a summary of non-plan option and warrant activity for the year ended December 31, 2015:
|
|
Shares
|
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining
Contractual Term
|
|
Aggregate Intrinsic Value ($)
|
|
Outstanding at beginning of year
|
|
|
145,920
|
|
|
$
|
6.00
|
|
|
|
|
|
Granted
|
|
|
565,217
|
|
|
|
25.00
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Forfeited
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Expired
|
|
|
(139,920
|
)
|
|
|
5.40
|
|
|
|
|
|
Outstanding at end of year
|
|
|
571,217
|
|
|
|
25.00
|
|
2.04 years
|
|
$
|
0
|
|
Vested and expected to vest at end of year
|
|
|
571,217
|
|
|
$
|
25.00
|
|
2.04 years
|
|
$
|
0
|
|
The aggregate fair value of non-plan options and warrants vested during the years ended December 31, 2015, 2014, and 2013 was $1,300,000, $0, and $129,192, respectively.
Non-plan options and warrants outstanding at December 31, 2015 include warrants issued in January 2015 to 1624 PV, LLC (“1624”) for a purchase price of $1,300,000, which is considered the best measure of the warrants’ fair value (see Note 10). The fair value of these warrants as of December 31, 2015 is included in shareholders’ equity in the accompanying balance sheets.
The aggregate intrinsic value of non-plan options and warrants exercised during 2015, 2014, and 2013, was $0, $1,793,694, and $3,038,635, respectively.
Options and Warrants by Price Range
The options and warrants outstanding at December 31, 2015 under all plans, including the non-plan options and warrants, have exercise price ranges, weighted average contractual lives, and weighted average exercise prices are as follows:
|
|
|
Options and Warrants Outstanding
|
|
|
Options and Warrants Vested
|
|
Range of Exercise Prices
|
|
|
Number Outstanding at December 31, 2015
|
|
Wtd. Avg. Exercise Price
|
|
|
Wtd. Avg. Remaining Contractual Life
|
|
|
Number Exercisable at December 31, 2015
|
|
Wtd. Avg. Exercise Price
|
|
|
Wtd. Avg. Remaining Contractual Life
|
|
$
|
1.80 - $5.80
|
|
|
|
70,079
|
|
|
$
|
2.40
|
|
|
|
6.04
|
|
|
|
10,079
|
|
|
$
|
5.80
|
|
|
|
1.02
|
|
$
|
6.10 - $10.30
|
|
|
|
228,605
|
|
|
|
8.90
|
|
|
|
2.73
|
|
|
|
228,605
|
|
|
|
8.90
|
|
|
|
2.73
|
|
$
|
11.80 - $20.10
|
|
|
|
244,581
|
|
|
|
14.80
|
|
|
|
2.54
|
|
|
|
237,081
|
|
|
|
14.80
|
|
|
|
2.51
|
|
$
|
22.60 - $35.00
|
|
|
|
665,058
|
|
|
|
29.30
|
|
|
|
2.48
|
|
|
|
663,511
|
|
|
|
29.30
|
|
|
|
2.48
|
|
$
|
36.40 -$45.10
|
|
|
|
14,678
|
|
|
|
42.70
|
|
|
|
3.94
|
|
|
|
14,053
|
|
|
|
42.80
|
|
|
|
3.91
|
|
|
|
|
|
|
1,223,001
|
|
|
$
|
21.20
|
|
|
|
2.76
|
|
|
|
1,153,329
|
|
|
$
|
22.20
|
|
|
|
2.54
|
|
Upon exercise of options and warrants under all plans, we issue new shares of our common stock. For shares issued upon exercise of warrants or equity awards granted under the Stock Plans, the shares of common stock are registered. For shares issued upon exercise of non-plan RSU or option awards, the shares are not registered unless they have been subsequently registered by us on a registration statement. Cash received from option and warrant exercises for the years ended December 31, 2015, 2014, and 2013, was $0, $1,655,550, and $1,147,380 respectively. No tax benefit was realized for the tax deductions from exercise of the share-based payment arrangements for the years ended December 31, 2015, 2014, and 2013 as the benefits were fully offset by a valuation allowance (see Note 8).
10.
STOCK AUTHORIZATION AND ISSUANCE
Preferred Stock
We have 15,000,000 shares of preferred stock authorized for issuance at the direction of the board of directors. As of December 31, 2015, we had no outstanding preferred stock.
On November 17, 2005, our board of directors designated 100,000 shares of authorized preferred stock as the Series E Preferred Stock in conjunction with its adoption of a Shareholder Protection Rights Agreement (Note 11).
Common Stock and Warrants
The following table presents a summary of completed equity offerings for the years ended December 31, 2015, 2014, and 2013 (in thousands, except for per share amounts):
Date
|
Transaction
|
|
# of Common Shares/ Units Sold (in 000’s)
|
|
|
Price per Share/Unit
|
|
|
# of Warrants Issued (in 000’s)
|
|
|
Average Exercise Price per Warrant
|
|
|
Net Proceeds (in 000’s)
(1)
|
|
|
Offering as % of Out-standing Common Stock
(2)
|
|
December 23, 2015
|
Offering to a limited number of institutional and other investors
|
|
|
1,086
|
|
|
$
|
1.90
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
2,040
|
|
|
|
9.9
|
%
|
December 23, 2015
|
Offering to a member of our Board
|
|
|
21
|
|
|
$
|
2.40
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
50
|
|
|
|
0.20
|
%
|
January 15, 2015
|
Sale of warrants
(3)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
565
|
|
|
$
|
25.00
|
3
|
|
$
|
1,300
|
|
|
|
n/a
|
|
March 13, 2014
|
Offering to two institutional investors
|
|
|
267
|
|
|
$
|
45.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
11,900
|
|
|
|
2.80
|
%
|
August 6, 2013
|
Offering to a limited number of institutional and other investors
|
|
|
368
|
|
|
$
|
38.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
13,000
|
|
|
|
4.00
|
%
|
March 26, 2013
|
Underwritten offering
|
|
|
472
|
|
|
$
|
32.50
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
14,300
|
|
|
|
5.40
|
%
|
(1)
|
After deduction of applicable underwriters’ discounts, placement agent fees, and other offering costs.
|
(2)
|
Calculated on an after-issued basis.
|
(3)
|
We sold 3 warrants to 1624, each for the purchase of up to 188,406 shares of our common stock at exercise prices of $15.00, $25.00 and $35.00, respectively. The warrants expire three years from the date of issuance.
|
In addition, in January 2015, we issued 25,000 shares of unregistered common stock to our securities counsel, Graubard Miller in exchange for a $250,000 prepaid retainer for legal services. The shares issued to Graubard Miller and the shares underlying the warrants issued to 1624 were registered March 6, 2015 and registration became effective May 4, 2015. (File number 333-202802).
We filed a registration statement on January 12, 2016 to register the resale of the common stock issued in the December 23, 2015 offering to institutional and other investors. The registration statement became effective on January 19, 2016 (File No. 333-208958). In the event the registration statement ceases to be effective for any continuous period that exceeds 10 consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period or any time during the six-month anniversary of the registration date (a “Registration Default”), we shall pay the investors an amount in cash equal to 1% of the aggregate purchase price paid for each 30-day period of a Registration Default. The maximum penalty that we may incur under this arrangement is 10% per Registration Default event, or an aggregate maximum of 30% of the aggregate purchase price or approximately $619,000, subject to reduction for shares sold or transferred and not held at the penalty determination date. We do not believe that payment under the registration payment arrangement is probable and therefore no related liability has been recorded in the accompanying financial statements.
On January 25, 2016, we sold 454,546 shares of our common stock at a price of $2.20 per share to an accredited investor in a private placement transaction generating gross proceeds of approximately $1,000,000. We have no registration obligations with respect to these shares.
On February 25, 2016, we issued warrants for the purchase of up to 250,000 shares of our common stock in connection with a litigation funding arrangement (see Note 16). These warrants have an exercise price of $3.50 per share, are exercisable for five years from the date of issuance, and have piggy-back registration rights of the underlying warrant shares.
11.
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 of directors (the “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 a redemption price of $0.01.
12.
COMMITMENTS AND CONTINGENCIES
Lease Commitments
Our headquarters facility in Jacksonville, Florida is leased pursuant to a non-cancelable lease agreement effective June 1, 2006. The lease term, as amended in September 2014, provides for a straight-lined monthly rental payment of approximately $26,000 through January 2018 with an option for renewal.
We also lease office space in Lake Mary, Florida for our wireless design center. The lease term, as amended in December 2013 provides for a straight-lined monthly rental payment of approximately $18,500 through May 2017 with an option for renewal. Deferred rent is amortized to rent expense over the respective lease term.
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 properties, for the years ended December 31, 2015, 2014, and 2013 was $545,334, $523,454, and $476,782, respectively.
In addition, we lease certain equipment, primarily for research and development activities, under non-cancelable operating leases with lease terms of less than one year. Equipment rental expense for the years ended December 31, 2015, 2014, and 2013 was $62,853, $191,527, and $235,370, respectively.
Contractual Obligations
Future minimum lease payments under all non-cancelable operating leases and capital leases that have initial or remaining terms in excess of one year as of December 31, 2015 were as follows:
Contractual obligations:
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
Total
|
|
Operating leases
|
|
$
|
587,500
|
|
|
|
428,400
|
|
|
$
|
14,200
|
|
|
$
|
1,030,100
|
|
Capital leases
|
|
$
|
53,800
|
|
|
$
|
300
|
|
|
$
|
0
|
|
|
$
|
54,100
|
|
Legal Proceedings
From time to time, we are subject to legal proceedings and claims which arise in the ordinary course of our business. These proceedings include patent enforcement actions initiated by us against others for the infringement of our technologies, as well as proceedings brought by others against us at the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (“PTAB”) in an attempt to invalidate certain of our patent claims. These patent-related proceedings are more fully described below. We believe, based on advice from our outside legal counsel, that the final disposition of these matters will not have a material adverse impact on our financial position, results of operation or liquidity.
ParkerVision vs. Qualcomm, Inc.
On July 20, 2011, we filed a patent infringement action in the United States District Court of the Middle District of Florida (the “Middle District of Florida”) against Qualcomm Incorporated (“Qualcomm”) seeking damages and injunctive relief for infringement of several of our patents related to radio-frequency receivers and the down-conversion of electromagnetic signals (the “Qualcomm I Action”). Qualcomm filed a counterclaim against us alleging invalidity and unenforceability of each of our patents. In October 2013, a jury found that all of Qualcomm’s accused products directly and indirectly infringed all eleven claims of the four patents asserted by us and awarded us $172.7 million in damages. The jury also found that Qualcomm did not prove its claims of invalidity for any of the eleven claims of the four patents in the case, and furthermore found that we did not prove our claims of willfulness, which would have allowed enhancement of the jury-awarded damages. On June 20, 2014, a final district court ruling was issued in which the court overturned the jury’s verdict of infringement thus nullifying the damages award. We appealed this decision to the U.S. Court of Appeals for the Federal Circuit (“CAFC”) and Qualcomm filed a counter-appeal on the issues of validity and damages. On July 31, 2015, the appellate court upheld the district court’s determination of non-infringement and overturned the district court’s decision on validity, ruling that ten of the eleven patent claims in the case were invalid. On October 2, 2015, the CAFC denied our petition for a rehearing with respect to infringement of the one claim that was not invalidated by the CAFC (“Claim 27 of the ‘518 Patent”). On February 29, 2016 we filed a petition with the Supreme Court of the United States (“Supreme Court”) in this matter. On March 28, 2016 the Supreme Court denied our petition requesting a review of the appellate court’s decision.
ParkerVision vs. Qualcomm, HTC, and Samsung
On May 1, 2014, we filed a complaint in the Middle District of Florida against Qualcomm, Qualcomm Atheros, Inc., and HTC (HTC Corporation and HTC America, Inc) (the “Qualcomm II Action”) seeking unspecified damages and injunctive relief for infringement of seven of our patents related to RF up-conversion, systems for control of multi-mode, multi-band communications, baseband innovations including control and system calibration, and wireless protocol conversion. On August 21, 2014, we amended our complaint adding Samsung (Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung Telecommunications America, LLC ) as a defendant. We also added infringement claims of four additional patents to this case. On November 17, 2014, certain of the defendants filed counterclaims of non-infringement and invalidity for all patents in the case. A claim construction hearing was held on August 12, 2015 but no ruling on claim construction has been issued by the court. In January 2016, the court granted the parties’ joint motion to dismiss claims and counterclaims related to six patents in the case in order to narrow the scope of the litigation. In February, 2016, the court granted the parties’ joint motion to stay these proceedings until resolution of the proceedings at the ITC as discussed below.
RPX and Farmwald vs. ParkerVision
In mid-2014, RPX Corporation and Michael Farmwald (collectively, the “Petitioners”) filed petitions for
Inter Partes
review (“IPR”) with the PTAB seeking to invalidate eleven claims included in the four patents in our Qualcomm I Action, as well as a number of additional claims related to those same four patents. In December 2014, the PTAB issued a decision to institute trial on three of the four petitions which included nine of the eleven claims in the Qualcomm I Action and excluded Claim 27 of the ‘518 Patent. In January 2015, the PTAB denied institution of trial for the fourth petition which included one of the eleven claims in the Qualcomm I Action. As a result of the appellate court’s decision in July 2015 invalidating ten of the eleven claims in the Qualcomm I Action, we determined not to pursue defense of the remaining claims under the three outstanding IPRs. On October 22, 2015, the PTAB dismissed these three cases.
Qualcomm Inc. and Qualcomm Atheros, Inc. vs. ParkerVision
On August 27, 2015, Qualcomm, Inc. and Qualcomm Atheros, Inc. filed an aggregate of ten petitions for IPR with the PTAB seeking to invalidate certain claims related to three of the eleven patents originally asserted in our Qualcomm II Action. We filed preliminary responses to these petitions in December 2015. 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”) and instituting trial for the remaining petitions, all of which relate to our U.S. patent 6,091,940 (the ‘940 Patent”) and U.S. patent 7,966,012 (“the ‘012 Patent”). The ‘372 Patent and the ‘940 Patent are among the patents asserted in the Qualcomm II Action. Our responses to the petitions that were instituted for trial are due in May 2016 and replies from Qualcomm are due in August 2016.
ParkerVision v. Apple, LG, Samsung and Qualcomm
On December 15, 2015, we filed a complaint with the United Stated International Trade Commission (“ITC”) against Apple, Inc., LG (LG Electronics, Inc., LG Electronics U.S.A., Inc., and LG Electronics MobileComm U.S.A., Inc.), Samsung (Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung Semiconductor, Inc.) and Qualcomm alleging that these companies have engaged in unfair trade practices by unlawfully importing into the U.S. and selling various products that infringe four of our patents. We also requested that the ITC bar the defendants from continuing to import and sell infringing products in the U.S. We filed a corresponding patent infringement complaint in the Middle District of Florida against these same defendants alleging infringement of four of our patents. In January 2016, the ITC instituted an investigation based on our complaint. In February 2016, the district court proceedings were stayed pending resolution of the proceedings at the ITC. The ITC hearing is currently scheduled for August 2016.
13.
RELATED-PARTY TRANSACTIONS
We paid approximately $428,000, $1,705,000, and $587,000 in 2015, 2014, and 2013, respectively, for patent-related legal services to the law firm of Sterne, Kessler, Goldstein & Fox, PLLC (“SKGF”), of which Robert Sterne, one of our directors since September 2006, is a partner. At December 31, 2015, we had approximately $1,164,000 in unpaid fees to SKGF, primarily related to defense of our patents under IPR (see Note 12 for a discussion of IPR proceedings). In February 2016, we paid approximately $339,000 of these outstanding fees and entered into an agreement with SKGF to convert the remaining $825,000 to an unsecured note payable (see Note 16).
On December 23, 2015, Mr. Papken Der Torossian, one of our directors since June 2003, purchased 20,833 shares of our common stock in an unregistered sale of equity securities at a purchase price of $2.40 per share.
Wellington Management Group, LLP (“Wellington”) it its capacity as investment advisor, under the rules of NASDAQ, was deemed to be the beneficial owner of 214,850 shares of our common stock purchased by accredited investors on December 23, 2015 at a price of $1.90 per share. Wellington was deemed to be beneficial owner of more than 5% of our outstanding stock at the time of the transactions.
14.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to a concentration of credit risk principally consist of cash and 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.
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.
15.
FAIR VALUE MEASUREMENTS
We have determined the estimated fair value amounts of our financial instruments using available market information. Our assets that are measured at fair value on a recurring basis included in our balance sheet at December 31, 2015 and 2014 are:
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Fair Value Measurements
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Total
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Quoted Prices in Active Markets (Level 1)
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Significant Other Observable Inputs (Level 2)
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Significant Unobservable Inputs (Level 3)
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December 31, 2015:
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Available-for-sale securities:
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Municipal bond
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mutual funds
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$
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1,789,947
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$
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1,789,947
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$
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0
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$
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0
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December 31, 2014:
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Available-for-sale securities:
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Municipal bond
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mutual funds
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$
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10,985,000
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$
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10,985,000
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$
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0
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$
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0
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16.
SUBSEQUENT EVENTS
Promissory Note
On February 19, 2016, we converted $825,000 of fees payable to a related party into an unsecured, long-term promissory note. Interest is payable monthly on the outstanding principal balance at a rate of 8% per annum and retroactive to January 1, 2016. The balance of the note is payable in full, along with any accrued interest, on December 31, 2017 and early prepayment is allowed without penalty.
Litigation Funding Agreement
On February 25, 2016, we entered into a litigation funding agreement with Brickell Key Investments LP, (“BKI”), a special purpose fund under the management of Juridica Asset Management Limited. Under the agreement, we received $10 million from BKI in February 2016 to be used to pay our legal fees and expenses in connection with the legal proceedings filed against Apple, LG, Samsung and Qualcomm in December 2015 (the “Funded Actions”). These funds are maintained in a separate account by us and are restricted for specific use. In March 2016, we received an additional $1 million in unrestricted funds from BKI to be used for general working capital purposes, including transaction costs.
We will reimburse and compensate BKI from gross proceeds resulting from the Funded Actions and/or gross proceeds from other patent enforcement actions and patent-related monetization activities. BKI is entitled to priority payment of 100% of proceeds from all patent-related actions until such time that BKI has been repaid in full. After repayment of the funded amount, BKI is entitled to a portion of remaining proceeds up to a specified minimum return which is determined as a percentage of the funded amount. In addition, BKI is entitled to a pro rata portion of proceeds solely from the Funded Actions to the extent the Funded Action proceeds exceed the specified minimum return.
We granted BKI a senior security interest in our assets until such time as the specified minimum return is paid, in which case, the security interest will be released except with respect to the patents and proceeds directly related to Funded Actions. The security interest is enforceable by BKI in the event that we are in default under the agreement which would occur if (i) we fail, after notice, to pay proceeds to BKI, (ii) we become insolvent or insolvency proceedings are commenced (and not subsequently discharged) with respect to us, (iii) our creditors commence actions against us (which are not subsequently discharged) that affect our material assets, (iv) we, without BKI’s consent, incur indebtedness other than immaterial ordinary course indebtedness, or (v) there is an uncured non-compliance of our obligations or misrepresentations under the agreement.
We also granted BKI a first right to provide additional funds on substantially similar terms as provided for in the agreement, including, specifically, the right to fund up to $2 million with respect to additional identified patent enforcement actions that may be taken by us.
In connection with the agreement, we issued BKI a warrant to purchase up to 250,000 shares of our common stock at an exercise price of $3.50 per share (see Note 10).
We are currently evaluating the accounting treatment and financial statement impact of the BKI transactions.
Reverse Stock Split
On March 24, 2016, we filed an amendment to our articles of incorporation that effected a one-for-ten reverse stock split of our common stock. The amendment was approved by our Board on March 23, 2016 and did not require the approval of our shareholders. The reverse stock split became effective at 5:00 pm Eastern time on March 29, 2016, and our common stock began trading on the NASDAQ capital market on a post-split basis at the open of business on March 30, 2016.
As a result of the reverse stock split, every ten shares of our common stock was combined into one share of our common stock. No fractional shares of our common stock were issued in connection with the reverse stock split. Any fractional shares created as a result of the reverse stock split were rounded up to the next largest whole number. The par value and other terms of our common stock will not be affected by the reverse stock split. However, the number of shares of common stock that we are authorized to issue was proportionately reduced from 150,000,000 shares to 15,000,000.
17
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QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial data presented below is in thousands except for per share data:
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For the three months ended
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March 31, 2015
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June 30, 2015
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September 30, 2015
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December 31, 2015
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Revenues
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$
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0
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$
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0
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$
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5
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$
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6
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Gross margin
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0
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0
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0
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(1
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)
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Net loss
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(5,776
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)
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(4,842
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)
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(3,136
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)
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(3,321
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)
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Basic and diluted net loss per common share
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$
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(0.59
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)
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$
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(0.50
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)
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$
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(0.32
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)
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$
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(0.33
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)
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For the three months ended
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March 31, 2014
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June 30, 2014
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September 30, 2014
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December 31, 2014
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Revenues
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$
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0
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$
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0
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$
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0
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$
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0
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Gross margin
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0
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0
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0
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0
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Net loss
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(5,772
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)
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(5,841
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)
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(6,409
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)
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(5,547
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)
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Basic and diluted net loss per common share
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$
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(0.61
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)
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$
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(0.61
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)
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$
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(0.66
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)
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$
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(0.57
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)
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