PARKERVISION INC - Annual Report: 2014 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

For the fiscal year ended December 31, 2014

 

Commission file number 0-22904

 

PARKERVISION, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

7915 Baymeadows Way, Suite 400

Jacksonville, Florida 32256

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code:  (904) 732-6100

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes (  ) No (X)

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.  Yes (  ) No (X)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No( )

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes (X) No (  )

 

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  (X )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act.  (Check one):  

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).   Yes (  ) No (X)

 

As of June 30, 2014, the aggregate market value of the registrant’s common stock, $.01 par value, held by non-affiliates of the registrant was approximately $120,989,335 (based upon $1.48 share closing price on that date, as reported by NASDAQ).

 

As of March 11, 2015,  97,555,516 shares of the Issuer's Common Stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the registrant’s 2015 Annual Meeting of Shareholders, to be filed not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III (Items 10, 11, 12, 13, and 14) of this report. 

 

 

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TABLE OF CONTENTS 

 

 

 

 

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INTRODUCTORY NOTE

 

Unless the context otherwise requires, in this Annual Report on Form 10-K (“Annual Report”), “we”, “us”, “our” and the “Company” mean ParkerVision, Inc.

 

Forward-Looking Statements

 

We believe that it is important to communicate our future expectations to our shareholders and to the public.  This Annual 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 under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  When used in this Annual Report and in future filings by the Company with the Securities and Exchange Commission (“SEC”), the words or phrases “will likely result”, “management expects”, “we expect”, “will continue”, “is anticipated”, “estimated” or similar expressions are intended to identify such “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 set forth in this Annual Report under the heading “Item 1A. Risk Factors” and in our other periodic reports.  Examples of such risks and uncertainties include general economic and business conditions, the outcome of litigation, competition, unexpected changes in technologies and technological advances, the timely development and commercial acceptance of new products and technologies, reliance on key business and sales relationships, reliance on our intellectual property, 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.

 

PART I

 

Item 1.  Business.

 

We were incorporated under the laws of the state of Florida on August 22, 1989.  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 semiconductor circuits for 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 (“U.S.”) and certain foreign jurisdictions.  We believe certain patents protecting our proprietary technologies have been broadly infringed by others and therefore our business plan includes enforcement of our intellectual property rights through patent infringement litigation and licensing efforts.

 

Based on the manner in which our management views and evaluates our operations, we have determined that our business currently operates under a single segment.  Refer to our financial statements in Item 8 of this Annual Report for financial data including net losses from operations and total assets.

 

Recent Developments

 

Litigation Funding Agreement

In December 2014, we entered into a funding agreement with 1624 PV, LLC (“1624”), an affiliate of 1624 LLC, a litigation investment firm, whereby 1624 committed to fund up to $7 million for legal fees and expenses for specified future patent infringement litigation.  We will reimburse and compensate 1624 from the proceeds resulting from these actions.  In addition, 1624 may receive a portion of our proceeds

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from other patent litigation, licensing and patent-related monetization activities.  1624’s compensation is subject to a maximum which is determined as a multiple of the funds provided by 1624 under this agreement.   We have not yet filed any patent infringement actions covered by this agreement. 

 

Sale of Warrants

In December 2014, we also entered into an agreement for the sale of warrants to 1624 for an aggregate price of $1.3 million.  This transaction closed on January 15, 2015 at which time we issued three warrants to 1624, each for the purchase of up to 1,884,058 shares of our common stock at exercise prices of $1.50, $2.50 and $3.50 per share, respectively.   The warrants are exercisable through January 15, 2018.   If the warrants are fully exercised in the future, we will receive aggregate exercise proceeds of approximately $14.1 million.  We expect to file a registration statement with the SEC promptly after filing this report to cover the resale of all of the shares of common stock issuable upon exercise of the warrants. 

 

Inter Partes Review

In 2014, RPX Corporation and Michael Farmwald filed petitions for Inter Partes review (“IPR”) with the Patent Trial and Appeal Board of the United States Patent and Trademark Office (“PTAB”) seeking to invalidate certain claims related to four of our patents.  On December 18, 2014, the PTAB issued a decision to institute trial on certain claims included in three of the four IPR petitions and denied institution on one challenged claim.  On January 8, 2015, the PTAB denied institution of trial for the fourth IPR petition.  Refer to “Legal Proceedings” in Note 11 to our financial statements included in Item 8 for a complete discussion of our IPR proceedings.

 

General Development of Business 

 

Our business has been primarily focused on the development, marketing and legal enforcement of our RF technologies for mobile and other wireless applications.  Our technologies represent among other things, unique, proprietary methods for processing RF waveforms in wireless applications.  Our technologies apply to both transmit and receive functions of transmitters, receivers, and transceivers as well as other related RF communications functions.  A portion of our transmit technology is marketed as Direct2Power™, or d2p™, and enables the transformation of a baseband data signal to an RF carrier waveform, at the desired power output level, in a single unified operation.  A portion of our receiver technology is marketed as Direct2Data™, or d2d™, and enables the direct conversion of an RF carrier to a baseband data signal.  We have developed these and a number of additional innovations which are protected by the intellectual property we have secured in various patent families for RF and related functions in RF-based communications.

 

Strategy

 

We have a three-part growth strategy for commercializing our innovations that includes intellectual property licensing and/or product ventures, intellectual property enforcement, and product and component development, manufacturing and sales. 

 

 

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Since 2005, we have generated no royalty or product revenue from our RF technologies.  Our ability to generate revenues sufficient to offset costs is subject to our ability to successfully enforce and defend our intellectual property rights, secure new product and/or licensing customers for our technologies, and successfully support those customers in completing their product designs.  

 

We believe the investments we make in new technology innovations and obtaining intellectual property rights on those innovations are critical business processes and, as such, we have and will continue to devote substantial resources to research and development for this purpose.  We protect our intellectual property rights by securing patent protection and, where necessary, defending those patents against infringement by others.  

 

Products and Services

 

In order to utilize RF technology in a mobile handset or certain other wireless application, RF chipsets must interface with the baseband processor that generates the data to be transmitted and/or received.  The development of the interface between the baseband processor and RF chipsets requires a cooperative effort with the baseband provider. 

 

We have designed RF chipsets to interface specifically with baseband processors produced by VIA-Telecom, Inc. (“VIA”), a CDMA baseband provider.  We have worked with VIA since 2009 on the joint development of reference platforms that incorporate our products and VIA baseband processors without the exchange of intellectual property rights.  We also worked with VIA to co-develop a sample 3G mobile handset which verified our technology in a working implementation and tested our technology’s performance.  The results of these efforts were utilized to market our product to VIA’s customers.  Since 2010, we have modified our circuit layout and packaging to meet design requirements of specific VIA’s customers.   In 2013, we entered into a formal development agreement with VIA whereby we would compensate VIA for the resources required for their development and ongoing support and maintenance of the custom interfaces between our products for a specific customer.   Pursuant to the agreement, VIA completed the development of the custom interface for certain of its baseband processors.  In 2014, we terminated our formal development agreement with VIA prior to VIA’s completion of the interface to its latest model baseband processor due to the uncertainty of the specific customer’s future use of the VIA baseband in its products.

 

We anticipate our future business will include licensing of our intellectual property, the joint development and/or sale of integrated circuits based on our technology for incorporation into wireless devices designed and manufactured by our customers, and the sale of products and components developed and manufactured by us.  In addition, from time to time, we may provide engineering consulting and design

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services to our customers, for a negotiated fee, to assist them in developing prototypes and/or products incorporating our technologies.  Our technology is capable of being incorporated for any of the mobile handset standards, as well as numerous other communications protocols such as WiFi, Bluetooth, Zigbee, and GPS.   By pursuing both licensing and product opportunities, we believe our technologies can be deployed in multiple markets that incorporate RF transmitters, receivers, and/or transceivers, including mobile handsets, tablets, femtocells, machine-to-machine, RF identification and infrastructure, among others.    In order to secure proper compensation for the unauthorized use of our technologies by others, our licensing efforts also include enforcement actions against parties in these markets who we believe have already deployed products that infringe certain of our patented technologies.

 

Competitive Position 

 

We operate in a highly competitive industry against companies with substantially greater financial, technical, and sales and marketing resources.   Our technologies face competition from incumbent providers of transceivers, such as Broadcom, Fujitsu, Intel, MediaTek, NVidia, Qualcomm, STMicroelectronics,  Marvell, Texas Instruments, and others, as well as incumbent providers of power amplifiers, including companies such as Anadigics, Qorvo, and Skyworks, among others.   Each of our competitors, however, also has the potential of becoming a licensing or product customer for our technologies.  Competition in our industry is generally based on price and technological performance.

 

To date, we are unaware of any competing or emerging RF technologies that provide all the simultaneous benefits that certain of our technologies enable. Our unique technologies process RF carriers in a more optimal manner than prior traditional technologies, thereby allowing the creation of handsets and other products that have extended battery life, lower operating temperatures, more easily incorporate multiple air interface standards and frequencies in smaller form factors, improve operational performance, and reduce manufacturing costs.   One or more of these benefits enable some of the key features that can be found in high volume wireless products.  Our technologies provide such attractive benefits, in part, because of their unique operational and/or circuit architectures.  The benefits our technologies enable include highly accurate transmission and reception of RF carriers that use less power than traditional architectures and components, thereby extending battery life, reducing heat and enabling certain size, cost, performance, and packaging advantages. 

 

We believe the most significant hurdle to the licensing and/or sale of our technologies and products is the widespread use of certain of our technologies in infringing products produced by companies with significantly greater financial, technical and sales and marketing resources.  In some cases, the disruptive nature of our technologies, the required integration of our technologies with other sub-systems in semiconductor systems on-chip, and our lack of tenure in the markets we are targeting provide further hurdles to adoption.  We believe we can gain adoption and/or secure licensing agreements with unauthorized current users of one or more of our technologies, and therefore compete, based on a solid and defensible patent portfolio and the advantages enabled by our unique circuit architectures.  Our circuit architectures are capable of being compliant with all current mobile phone and numerous other wireless industry standards and can be configured to accept all standard baseband data interfaces with the cooperation of the baseband processor providers.  In addition, we believe that one or more of our technology’s abilities to provide improved power efficiencies, highly accurate RF carrier waveforms, reduced cost, smaller form factors and better manufacturing yields, provides a sought-after solution to existing problems in applications for 3G,  4G, and next-generation mobile wireless standards, as well as in other applications where we believe our technologies can provide an attractive solution.

 

Production and Supply 

 

In 2014, we initiated production of certain component products in order to provide inventory to support

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our sales efforts.  The integrated circuits which incorporate our RF technologies are produced through fabrication relationships with IBM Microelectronics (“IBM”) using a silicon germanium process and Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) using a CMOS semiconductor process.  We believe IBM and TSMC have sufficient capacity to meet our foreseeable needs.  In addition, our integrated circuits have been and can be produced using different materials and processes, if necessary, to satisfy capacity requirements and/or customer preferences.   In instances where our customer licenses our intellectual property, the production capacity risk shifts to that customer.  

 

Patents and Trademarks

 

We consider our intellectual property, including patents, patent applications, trademarks, and trade secrets to be significant to our competitive positioning.   We have a program to file applications for and obtain patents, copyrights, and trademarks in the U.S. and in selected foreign countries where we believe filing for such protection is appropriate to establish and maintain our proprietary rights in our technology and products.  As of December 31, 2014, we had 179 U.S. and 88 foreign patents related to our RF technologies.  In addition, we have approximately 45 U.S. and foreign patent applications pending.  We estimate the economic lives of our patents to be fifteen to twenty years and our current portfolio of issued patents have expirations ranging from 2018 to 2032.

 

From time to time, we obtain licenses from others for standard industry circuit designs that are integrated into our own integrated circuits as supporting components that are peripheral to our core technologies.  We believe there are multiple sources for these types of standard circuits and we estimate the economic lives of the licenses to be two to five years based on estimated technological obsolescence. 

 

Research and Development 

 

For the years ended December 31, 2014, 2013, and 2012 we spent approximately $8.5 million, $10.4 million, and $8.4 million, respectively, on Company-sponsored research and development activities.  Our research and development efforts have been, and are expected to continue to be, devoted to the development and advancement of RF technologies, including the development of prototype integrated circuits for proof of concept purposes, the development of production-ready silicon samples and reference designs for specific applications, and the creation of test programs for quality control testing of our chipsets. 

   

Employees

 

As of December 31, 2014, we had 47 full-time and 2 part-time employees, of which 30 are employed in engineering research and development, 6 in sales and marketing, and 13 in executive management, finance and administration.  Our employees are not represented by a labor union.  We consider our employee relations satisfactory.

 

Available Information and Access to Reports

 

We file annual reports on Forms 10-K, quarterly reports on Forms 10-Q, proxy statements and other reports, including any amendments thereto, electronically with the SEC.  The SEC maintains an Internet site (http://www.sec.gov) where these reports may be obtained at no charge. Copies of these reports may also be obtained from the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC  20549.  Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  We also make copies of these reports available, free of charge through our website (http://www.parkervision.com) via the link “SEC filings” as soon as practicable after filing or furnishing such materials with the SEC.    We also will provide copies of the annual report on Form 10-K and the

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quarterly reports on Forms 10-Q filed during the current fiscal year, including any amendments thereto, upon written request to us at ParkerVision, Inc., Investor Relations, 7915 Baymeadows Way, Suite 400, Jacksonville, Florida, 32256.  These reports will be provided at no charge.  Exhibits to these reports may be obtained at a cost of $.25 per page plus $5.00 postage and handling.   

 

Corporate Website

 

We webcast our earnings calls and certain events we participate in or host with members of the investment community in the investor relations section of our website.  Additionally, we announce investor information, including news and commentary about our business, financial performance and related matters, SEC filings, notices of investor events, and our press and earnings releases, in the investor relations section of our website (http://ir.parkervision.com).  Investors and others can receive notifications of new information posted in the investor relations section in real time by signing up for email alerts and/or RSS feeds.  Further corporate governance information, including our governance guidelines, board committee charters, and code of conduct, is also available in the investor relations section of our website under the heading “Corporate Governance.”  The content of our website is not incorporated by reference into this Annual 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.

 

Item 1A.  Risk Factors.

 

In addition to other risks and uncertainties described in this Annual Report, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition.  As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements.

Our financial condition raises substantial doubt as to our ability to continue as a going concern.

Our independent registered certified public accounting firm has included in their audit opinion on our financial statements as of and for the year ended December 31, 2014 a statement with respect to substantial doubt regarding our ability to continue as a going concern. Our financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  If we become unable to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.  The substantial doubt as to our ability to continue as a going concern may adversely affect our ability to negotiate reasonable terms with our suppliers and may adversely affect our ability to raise additional capital in the future. 

We have had a history of losses which may ultimately compromise our ability to implement our business plan and continue in operation.

We have had losses in each year since our inception in 1989, and continue to have an accumulated deficit which, at December 31, 2014, was approximately $313.6 million.  The net loss for 2014 was approximately $23.6 million.  To date, our technologies and products have not produced revenues sufficient to cover operating, research and development and overhead costs.  We will continue to make expenditures on patent protection and enforcement, research and development, marketing, and general operations in order to secure and fulfill any contracts that we achieve for the sale of our products or technologies.  We expect that our revenues in 2015 will not bring the Company to profitability and our current capital resources will not be sufficient to sustain our operations through 2015.  If we are not able to generate sufficient revenues or obtain sufficient capital resources, we will not be able to implement our

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business plan and investors will suffer a loss in their investment.  This may also result in a change in our business strategies.

We expect to need additional capital in the future.  Failure to raise such additional capital may prevent us from implementing our business plan as currently formulated.

Because we have had net losses and, to date, have not generated positive cash flow from operations, we have funded our operating losses from the sale of equity securities from time to time.  We anticipate that our business plan will continue to require significant expenditures for patent protection and enforcement, research and development, marketing, and general operations.  Furthermore, we expect that the implementation of significant cost reduction measures in order to reduce our cash needs may jeopardize our operations and future growth plans.  Our current capital resources include cash and available-for-sale securities of $11.2 million at December 31, 2014 and $1.3 million in net proceeds from our January 2015 sale of warrants.  In addition, we have a $7 million litigation funding commitment from a third-party; however, this funding is for specified use in future, not existing, patent enforcement actions.  These capital resources will not be sufficient to meet our working capital needs for 2015 and we will require additional capital to fund our operations.  Financing, if any, may be in the form of debt, contingent fee arrangements, or additional sales of equity securities, including common or preferred stock.   The incurrence of debt or the sale of preferred stock may result in the imposition of operational limitations and other covenants and payment obligations, any of which may be burdensome to us. Contingent fee arrangements may result in a significant reduction in net earnings from litigation and/or licensing activities.  The sale of equity securities, including common or preferred stock, may result in dilution to the current shareholders’ ownership.  The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from patent enforcement actions or the sale or license of our products or technologies, additional funding, reducing expenses or a combination of the foregoing.  The failure to generate sufficient revenues, raise capital or reduce expenses will have a material adverse effect on our ability to achieve our long-term business objectives.

If our patents and intellectual property rights do not provide us with the anticipated market protections, our competitive position, business, and prospects will be impaired.

We rely on our intellectual property rights, including patents and patent applications, to provide competitive advantage and protect us from theft of our intellectual property.  We believe that our patents are for entirely new technologies and that our patents are valid, enforceable and valuable.  However, third parties have made claims of invalidity with respect to certain of our patents and other similar claims may be brought in the future.  If our patents are shown not to be as broad as currently believed, or are otherwise challenged such that some or all of the protection is lost, we will suffer adverse effects from the loss of competitive advantage and our ability to offer unique products and technologies.  As a result, there would be an adverse impact on our financial condition and business prospects.  Furthermore, defending against challenges to our patents may give rise to material costs for defense and divert resources away from our other activities.

Our litigation can be time-consuming, costly and we cannot anticipate the results.

Since 2011, we have spent a significant amount of our financial and management resources to pursue patent infringement litigation against third parties.  We believe this litigation, and others that we may in the future determine to pursue, could continue to consume management and financial resources for long periods of time.  There can be no assurance that our current or future litigation matters will ultimately result in a favorable outcome for us.  In addition, even if we obtain favorable interim rulings or verdicts in particular litigation matters, they may not be predictive of the ultimate resolution of the matter.  Unfavorable outcomes could result in exhaustion of our financial resources and could otherwise hinder our ability to pursue licensing and/or product opportunities for our technologies which would have a material adverse impact on our financial condition, results of operations, cash flows, and business prospects.  Furthermore, any litigation-based awards collected will be subject to contingency payments to

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legal counsel and/or funding parties which will reduce the amount retained by us.

We are subject to outside influences beyond our control, including new legislation that could adversely affect our licensing and enforcement activities and have an adverse impact on the execution of our business plan.

Our licensing and enforcement activities are subject to numerous risks from outside influences, including new legislation, regulations and rules related to obtaining or enforcing patents.  For instance, the U.S. recently enacted sweeping changes to the U.S. patent system including changes that transition the U.S. from a “first-to-invent” to a “first to file” system and that alter the processes for challenging issued patents.  To the extent that we are unable to secure patent protection for our future technologies and/or our current patents are challenged such that some or all of our protection is lost, we will suffer adverse effects to our ability to offer unique products and technologies.  As a result, there would be an adverse impact on our financial position, results of operations and cash flows and our ability to execute our business plan.

Our industry is subject to rapid technological changes which if we are unable to match or surpass, will result in a loss of competitive advantage and market opportunity.

Because of the rapid technological development that regularly occurs in the wireless technology industry, we must continually devote substantial resources to developing and improving our technology and introducing new product offerings.  For example, in fiscal years 2014 and 2013, we spent approximately $8.5 million and $10.4 million, respectively, on research and development and, we expect to continue to spend a significant amount in this area in the future. These efforts and expenditures are necessary to establish market share and, ultimately, to generate revenues. If another company offers better products or technologies, a competitive position or market window opportunity may be lost, and therefore our revenues or revenue potential may be adversely affected.

If our technologies and/or products are not commercially accepted, our developmental investment will be lost and our ability to do business will be impaired.

There can be no assurance that our research and development will produce commercially viable technologies and products, or that our technologies and products will be established in the market as improvements over current competitive offerings.  If our existing or new technologies and products are not commercially accepted, the funds expended will not be recoverable, and our competitive and financial position will be adversely affected.  In addition, perception of our business prospects will be impaired with an adverse impact on our ability to do business and to attract capital and employees.

Our business is highly reliant on our business relationships with baseband suppliers for support of the interface of their product to our technology and the support of our sales and marketing efforts to their customers, the failure of which will have an adverse impact on our business. 

The successful commercialization of our products will be impacted, in part, by factors outside of our control including the success and timing of product development and sales support activities of the suppliers of baseband processors with which our products interface.  Delays in or failure of a baseband supplier’s product development or sales support activities will hinder the commercialization of our products which will have an adverse impact on our ability to generate revenues and recover development expenses.

We rely, in large part, on key business and sales relationships for the successful commercialization of our products, which if not developed or maintained, will have an adverse impact on achieving market awareness and acceptance and will result in a loss of business opportunity.

To achieve a wide market awareness and acceptance of our products and technologies, as part of our business strategy, we will attempt to enter into a variety of business relationships with other companies which will incorporate our technologies into their products and/or market products based on our

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technologies.  The successful commercialization of our products and technologies will depend in part on our ability to meet obligations under contracts with respect to the products and related development requirements.  The failure of these business relationships will limit the commercialization of our products and technologies which will have an adverse impact on our business development and our ability to generate revenues and recover development expenses.

We are highly dependent on Mr. Jeffrey Parker as our chief executive officer and Mr. David Sorrells as our chief technology officer.  If either of their services were lost, it would have an adverse impact on the execution of our business plan. 

Because of Mr. Parker’s leadership position in the company and the respect he has garnered in both the industry in which we operate and the investment community, the loss of his services might be seen as an impediment to the execution of our business plan.  Because of Mr. Sorrells’ technical expertise, the loss of his services could have an adverse impact on our research, technical support, and enforcement activities and impede the execution of our business plan.  If either Mr. Parker or Mr. Sorrells were no longer available to the company, investors might experience an adverse impact on their investment.  We currently have employment agreements with and maintain key-employee life insurance for our benefit for both Mr. Parker and Mr. Sorrells.

If we are unable to attract or retain key executives and other highly skilled employees, we will not be able to execute our current business plans.  

Our business is very specialized, and therefore it is dependent on having skilled and specialized key executives and other employees to conduct our research, development and customer support activities.  The inability to obtain or retain these key executives and other specialized employees would have an adverse impact on the research, development and technical customer support activities that our products require.  These activities are instrumental to the successful execution of our business plan.

Our outstanding options,  warrants, and restricted share units may affect the market price and liquidity of the common stock.

At December 31, 2014, we had 97,183,433 shares of common stock outstanding and had 9,880,352 options, warrants, and restricted share units (“RSU”) outstanding for the purchase and/or issuance of additional shares of common stock.  Of these outstanding equity instruments,  7,209,938 were exercisable as of December 31, 2014.  The majority of the shares of common stock underlying these securities is registered for sale to the holder or for public resale by the holder.  The amount of common stock available for the sales may have an adverse impact on our ability to raise capital and may affect the price and liquidity of the common stock in the public market.  In addition, the issuance of these shares of common stock will have a dilutive effect on current shareholders’ ownership.

The price of our common stock may be subject to substantial volatility.

The trading price of our common stock has been and may continue to be volatile.  Between January 1, 2014 and December 31, 2014, the reported high and low sales prices for our common stock ranged between $0.80 and $5.80 per share.  The price of our common stock may continue to be volatile as a result of a number of factors, some of which are beyond our control.  These factors include, but are not limited to, developments in outstanding litigations, our performance and prospects, general conditions of the markets in which we compete, and economic and financial conditions.  Such volatility could materially and adversely affect the market price of our common stock in future periods.

The bid price of our common stock has been below the minimum requirement for the NASDAQ Capital Market and there can be no assurance that we will continue to maintain compliance with the minimum bid price requirement for trading on that market or another national securities exchange.

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From time to time, the closing bid price of our common stock has been below the NASDAQ minimum bid price requirement of $1.  If the closing bid price remains below the minimum bid price requirement for a period of 30 consecutive business days, we will receive a non-compliance notice from the NASDAQ and will be afforded a 180-day period within which to regain compliance.   We are currently in compliance with the NASDAQ minimum bid price requirement.  There can be no assurance, however, that we will be able to maintain compliance.  If we are unable to maintain or regain compliance, our common stock may no longer be listed on NASDAQ or another national securities exchange and the liquidity and market price of our common stock may be adversely affected.

We do not currently pay dividends on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments.

We do not currently pay dividends on our common stock and intend to retain our cash and future earnings, if any, to fund our business plan.  Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our business, financial condition, results of operations and capital requirements.  We therefore cannot offer any assurance that our Board of Directors will determine to pay special or regular dividends in the future.  Accordingly, unless our Board of Directors determines to pay dividends, stockholders will be required to look to appreciation of our common stock to realize a gain on their investment.  There can be no assurance that this appreciation will occur. 

We may not be able to deliver shares of common stock upon exercise of our public warrants if such issuance has not been registered or qualified or deemed exempt under the securities laws of the state of residence of the holder of the warrant.

On November 3, 2010, we sold warrants to a limited number of institutional investors in an offering under one of our shelf registration statements.  The issuance of common stock upon exercise of these warrants must qualify for exemption from registration under the securities laws of the state of residence of the warrant holder.  The qualification for exemption from registration may differ in different states.  As a result, a warrant may be held by a holder in a state where an exemption is not available for such exercise and we may be precluded from issuing such shares.  If our common stock continues to be listed on the NASDAQ Capital Market or another national securities exchange, an exemption from registration for the issuance of common stock upon exercise of these warrants would be available in every state.  However, we cannot assure you that our common stock will continue to be so listed.  As a result, these warrants may be deprived of any value, the market for these warrants may be limited and the holders of these warrants may not be able to obtain shares of common stock upon exercise of the warrants if the common stock issuable upon such exercise is not qualified or otherwise exempt from qualification in the jurisdictions in which the holders of the warrants reside.

Provisions in our certificate of incorporation and by-laws could have effects that conflict with the interest of shareholders.

Some provisions in our certificate of incorporation and by-laws could make it more difficult for a third party to acquire control of us.  For example, our board of directors is divided into three classes with directors having staggered terms of office, our board of directors has the ability to issue preferred stock without shareholder approval, and there are advance notification provisions for director nominations and submissions of proposals from shareholders to a vote by all the shareholders under the by-laws.  Florida law also has anti-takeover provisions in its corporate statute. 

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We have a shareholder protection rights plan that may delay or discourage someone from making an offer to purchase the company without prior consultation with the board of directors and management, which may conflict with the interests of some of the shareholders.

On November 17, 2005, the board of directors adopted a shareholder protection rights plan which called for the issuance, on November 29, 2005, as a dividend, of rights to acquire fractional shares of preferred stock.  The rights are attached to the shares of common stock and transfer with them.  In the future the rights may become exchangeable for shares of 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 the company more costly.  The principal objective of the plan is to cause someone interested in acquiring the company to negotiate with the board of directors rather than launch an unsolicited bid.  This plan may limit, prevent, or discourage a takeover offer that some shareholders may find more advantageous than a negotiated transaction.  A negotiated transaction may not be in the best interests of the shareholders.

Item 1B.  Unresolved Staff Comments. 

 

Not applicable.

 

Item 2. Properties.

 

Our headquarters are located in a 14,000 square foot leased facility in Jacksonville, Florida.  We have an additional 12,500 square foot leased facility in Lake Mary, Florida primarily for engineering design activities.  Our facilities consist of general office space with laboratory facilities for circuit board layout and testing.  We believe our properties are in good condition and suitable for the conduct of our business.  Refer to “Lease Commitments” in Note 11 to our financial statements included in Item 8 for information regarding our outstanding lease obligations.

 

Item 3. Legal Proceedings.

 

Refer to “Legal Proceedings” in Note 11 to our financial statements included in Item 8 for a discussion of current legal proceedings. 

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

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PART II

 

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock is traded on NASDAQ under the symbol “PRKR.”  Listed below is the range of the high and low sale prices of the common stock for the last two fiscal years, as reported by NASDAQ. 

 

 

 

Holders

 

As of March 11, 2015, we had 111 holders of record and we believe there are approximately 6,900 beneficial holders of our common stock.

 

Dividends

 

To date, we have not paid any dividends on our common stock.  The payment of dividends in the future is at the discretion of the board of directors and will depend upon our ability to generate earnings, our capital requirements and financial condition, and other relevant factors.  We do not intend to declare any dividends in the foreseeable future, but instead intend to retain all earnings, if any, for use in the business.

 

Sales of Unregistered Securities

 

Information regarding all sales of unregistered equity securities during the period covered by this report has been previously disclosed.

 

Issuer Repurchase of Equity Securities

 

None.

 

 

 

 

 

 

 

 

 

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Performance Graph

 

The following graph shows a five-year comparison of cumulative total shareholder returns for our company, the NASDAQ U.S. Stock Market Index, the NASDAQ Electronic Components Index and the NASDAQ Telecommunications Index for the five years ending December 31, 2014.  The total shareholder returns assumes the investment on December 31, 2009 of $100 in our common stock, the NASDAQ U.S. Stock Market Index, the NASDAQ Electronic Components Index, and the NASDAQ Telecommunications Index at the beginning of the period, with immediate reinvestment of all dividends.

 

The data points for the performance graph are as follows:

 

*100 invested on 12/31/09 in stock & index-including reinvestment of dividends.

Fiscal year ending December 31.

 

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Item 6.  Selected Financial Data.

 

The following table sets forth our financial data as of the dates and for the periods indicated.  The data has been derived from our audited financial statements.  The selected financial data should be read in conjunction with our financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Executive Overview

 

We are in the business of innovating fundamental wireless technologies.   We design, develop and market our proprietary RF technologies and products for use in semiconductor circuits for 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 and certain foreign jurisdictions.  We believe certain patents protecting our proprietary technologies have been broadly infringed by others and therefore our business plan includes enforcement of our intellectual property rights through patent infringement litigation and licensing efforts.

 

We have a three-part growth strategy that includes intellectual property licensing and/or product ventures, intellectual property enforcement, and product and component development, manufacturing and sales.  We have actively launched a licensing/product venture campaign to explore licensing and joint product development opportunities with wireless communications companies that make, use or sell chipsets and/or products that incorporate RF.  We have engaged the intellectual property firm of 3LP to assist in managing our licensing operations, largely on a commission basis.  We believe there are a number of wireless communications companies that can benefit from the use of the RF technologies we have developed, whether through a license or, in certain cases, a joint product venture that may include licensing rights.

 

We are also involved in litigation against others in order to enforce our intellectual property rights.   Since 2011, we have been involved in patent infringement litigation against Qualcomm for their unauthorized

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use of our receiver technology.   In October 2013, a jury found that Qualcomm was infringing four of our receiver patents and awarded us $172.7 million in past damages.   In June 2014, the district court overturned the jury’s infringement verdict thereby nullifying the damages award.   We have appealed this decision to the U.S. Federal Court of Appeals and expect a decision in mid to late 2015, although the court has no fixed deadline for its ruling.  In May 2014, we filed a second infringement action against Qualcomm and certain Qualcomm customers for different patents and technologies.  This action is currently scheduled for trial in August 2016.  Refer to “Legal Proceedings” in Note 11 to our financial statements included in Item 8 for a complete discussion of our legal proceedings.  Our primary legal counsel in these actions provides us with a substantial fee discount in return for a contingent fee; however, we continue to dedicate a meaningful portion of our working capital to litigation fees and expenses.

 

Our product development and marketing efforts are focused on our RF components products marketed to industries that do not use highly integrated semiconductors, such as infrastructure, industrial and military applications.  In addition, we have developed RF chipsets that interface with certain VIA baseband processors.  We are not currently working with VIA on the interface to their latest baseband product.

 

Since 2005, we have generated no product or royalty revenue from our wireless technologies.  We have made significant investments in developing and protecting our technologies and products, the returns on which are dependent upon the generation of future revenues from licensing and/or product sales for realization. 

 

Liquidity and Capital Resources

 

At December 31, 2014, we had working capital of approximately $10.1 million, a decrease of approximately $5.1 million from working capital of $15.2 million at December 31, 2013.  We used cash for operations of approximately $18.5 million and $18.9 million in 2014 and 2013, respectively.  In addition we invested approximately $1.1 million and $0.7 million in patents and other long-lived assets in 2014 and 2013, respectively.  Our use of cash in 2014 and 2013 was partially offset by proceeds from the sale of equity securities and the exercise of employee and third party options and warrants totaling $13.6 million in 2014 and $28.4 million in 2013.    Proceeds from the sale of equity securities are invested in available-for-sale securities and our use of cash is funded from the sale of these investments.  At December 31, 2014, we were not subject to any significant commitments to make additional capital expenditures and we have no significant long-term debt obligations.

 

In December 2014, we entered into a litigation funding agreement with 1624 for the funding of up to $7 million of legal fees and expenses for specified future intellectual property enforcement actions that we expect to file.  Under this funding agreement, 1624 will be reimbursed and compensated from the proceeds resulting from these actions, as well as the proceeds from other patent litigation, licensing and/or other patent monetization activities.  1624’s reimbursement is solely contingent upon our receipt of proceeds from patent enforcement and other related activities and 1624 has no security interest in any of our assets.  In January 2015, we also received proceeds of $1.3 million from the sale of warrants to 1624.  We expect to use these proceeds to fund additional litigation-related costs.

 

Our future business plans call for continued investment in intellectual property prosecution and enforcement, product and component development and sales, and marketing and customer support for our technologies and products.  Our ability to generate revenues sufficient to offset costs is subject to our ability to successfully enforce our intellectual property rights, secure new product and/or licensing customers for our technologies, and successfully support those customers in completing their product designs.  In addition to the litigation funding arrangement with 1624, we also have a partial contingent fee arrangement with McKool Smith, our litigation counsel in the Qualcomm actions.  We are evaluating

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additional financing arrangements with respect to our existing litigation; however there can be no assurance that such financing will be available to us.  Any proceeds received from our patent enforcement actions will be shared with our legal counsel and/or third-party litigation funder based on the respective contingent fee arrangements that we have with such parties.  

 

Revenue generated from patent enforcement actions, technology licenses and/or the sale of products in 2015 may not be sufficient to cover our operational expenses, and we expect that our continued losses and use of cash will be funded from available working capital.  Our current capital resources include cash and available-for-sale securities of approximately $11.2 million at December 31, 2014, $1.3 million in proceeds from the sale of warrants received in January 2015, and $7 million in litigation funding commitments from 1624.  These current capital resources will not be sufficient to support our liquidity requirements through 2015 without the generation of revenues from our operating activities, further litigation or other financing, and/or cost containment measures.  Cost containment measures, if implemented, may jeopardize our ability to achieve our current business objectives. 

 

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.  In the event that we do not generate sufficient revenues, we will be required to obtain additional funding through contingent funding arrangements, public or private financing and/or reductions in operating costs.  Failure to generate sufficient revenues, raise additional capital through debt,  equity, or contingent-based financings, 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.  Our independent registered certified public accounting firm has included in their audit report an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. 

 

 

Results of Operations for Each of the Years Ended December 31, 2014, 2013,  and 2012

 

Revenues and Gross Margins

 

We had no revenues for the years ended December 31, 2014, 2013,  or 2012.   Future revenues resulting from patent enforcement actions, if any, will not be recognized until such time that we have final court adjudications or executed settlement agreements, the amounts are fixed and determinable, and the collectibility is reasonably assured.    

 

Revenues from patent enforcement actions, including non-litigation based licensing may be subject to contingent fees payable to legal counsel and other funding parties.    Although each contingent fee arrangement is unique, generally the litigation funding party is entitled to receive priority reimbursement for any out-of-pocket funds disbursed by them.  To date, none of the out-of-pocket costs related to our Qualcomm litigations have been funded by any third parties.  After deduction of priority payments, if any, the remaining proceeds from patent enforcement actions will be shared between us, our legal counsel, and/or any additional funding party on a percentage basis.  In some instances, the funding party’s contingent fee is capped based on a multiple of the funds invested by them.  In other instances, the funding party’s contingent fee percentage declines as the amount of the proceeds increases.

 

Research and Development Expenses 

 

Research and development expenses consist primarily of engineering and related management and support personnel costs; fees for outside engineering design services which we use from time to time to supplement our internal resources; amortization, depreciation, and maintenance expense related to our patents and other assets used in product development; prototype production and materials costs, which

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represent the fabrication and packaging costs for prototype integrated circuits, as well as the cost of supporting components for prototype board development; software licensing and support costs, which represent the annual licensing and support maintenance for engineering design and other software tools; and rent and other overhead costs for our engineering design facility.  Personnel costs include share-based compensation which represents the grant date fair value of equity-based awards to our employees which is attributed to expense over the service period of the award. 

 

Research and development costs decreased approximately $1.9 million, or 18.3% from 2013 to 2014.  This decrease is primarily the result of a decrease in outside consulting and other professional fees of approximately $946,000, and a decrease in personnel costs, including share-based compensation, of approximately $832,000.  The decrease in outside consulting and other professional fees is primarily due to the termination of a development project with VIA in early 2014.   The decrease in personnel costs is the result of a decrease in cash bonuses and share-based awards in 2014 when compared to 2013, as well as reduced share-based compensation expense as a result of previous years’ awards becoming fully vested in mid-2014.

 

Research and development costs increased approximately $2.0 million, or 23.2% from 2012 to 2013.  This increase is primarily the result of an increase in employee share-based compensation of approximately $829,000, an increase in outside consulting and other professional fees of approximately $739,000, and an increase in personnel and related costs of approximately $479,000.  The increase in share-based compensation expense is the result of long-term incentive equity awards granted to engineering executives and employees in July 2012 as well as restricted stock awards granted to employees as incentive compensation in 2013.  The increase in outside professional fees is the result of an increase in fees for outside design services, including the VIA development arrangement, as well as an increase in legal fees related to maintenance of our patent portfolio.  The increase in personnel and related costs is the result of an increase in personnel in early 2013 as well as an increase in performance bonuses to key engineering executives. 

 

The markets for our products and technologies are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions.  Our ability to successfully develop and introduce, on a timely basis, new and enhanced products and technologies will be a significant factor in our ability to grow and remain competitive. 

 

Marketing and Selling Expenses

 

Marketing and selling expenses consist primarily of personnel costs, including share-based compensation and travel costs, and outside professional fees which consist of various consulting and other professional fees related to sales and marketing activities. 

 

Marketing and selling expenses increased by approximately $1.1 million, or 63.3%, from 2013 to 2014.  This increase is primarily due to an increase in outside consulting and other professional fees of approximately $1,089,000.  The increase in outside consulting and other professional fees is a result of business development activities, including fees paid to 3LP for support of our licensing operations.  In 2015, our marketing and selling expenses are expected to be more directly correlated with revenues as much of our licensing activities will be compensated on a commission basis.

 

Marketing and selling expenses increased by approximately $0.1 million, or 7.1%, from 2012 to 2013.  This increase is primarily due to an increase in share-based compensation of approximately $120,000 as a result of long-term incentive equity awards granted to executives and employees in July 2012 and restricted stock awards granted to employees as incentive compensation in 2013. 

 

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General and Administrative Expenses

 

General and administrative expenses consist primarily of executive, director, finance and administrative personnel costs, including share-based compensation, and costs incurred for insurance, shareholder relations and outside professional services, including litigation fees. 

 

Our general and administrative expenses decreased by approximately $3.5 million, or 22.1%, from 2013 to 2014.  This decrease was due primarily to decreases in litigation fees and expenses of approximately $1,935,000 and decreases in share-based compensation expense of approximately $1,770,000.  The decrease in litigation fees and expenses is a result of the completion of our jury trial against Qualcomm in October 2013, offset somewhat by increases in litigation fees and expenses related to the appeal of the first Qualcomm action, the filing of a second Qualcomm action and the defense of our IPR actions.  We expect to continue to dedicate a substantial portion of our available capital to enforcement of our patents in 2015, although some of these costs are expected to be offset by contingent litigation funding arrangements.  The decrease in share-based compensation expense from 2013 to 2014 is a result of a reduction in share-based awards in 2014 when compared to 2013, as well as reduced expense attribution related to previous years’ awards that became fully vested in mid-2014. 

 

Our general and administrative expenses increased by approximately $5.5 million, or 53.3%, from 2012 to 2013.  This increase was due primarily to increases in litigation fees and expenses of approximately $3,400,000 and an increase in share-based compensation expense of approximately $2,430,000, partially offset by a decrease in various consulting fees of approximately $490,000.  This increase in litigation fees and expenses in 2013 was the result of our patent infringement litigation against Qualcomm, including the costs associated with the jury trial in October 2013.  The increase in share-based compensation expense in 2013 is primarily related to the expense attribution of long-term equity incentive awards granted to executives, other administrative employees, and non-employee directors in July 2012, and the expense recognized upon vesting of performance-based RSUs granted to a third-party in 2011.   In addition, share-based compensation expense in 2013 included the value of a stock-based performance bonus awarded to our CEO in lieu of a cash bonus of $390,000.  The decrease in consulting fees was the result of fewer outside engagements related to intellectual property strategies, investor relations and financial advisory fees in 2013 when compared to 2012. 

 

Loss and Loss per Common Share

 

Our net loss decreased approximately $4.3 million, or $0.07 per common share, from 2013 to 2014.  This decrease was a result of the $4.3 million decrease in operating expenses, which includes a $1.9 million decrease in litigation fees and expenses and a $2.4 million decrease in overall share-based compensation expense.  The decrease in the loss per common share is a result of the decreased net loss and an 8% increase in weighted average shares outstanding for the period.    

 

Our net loss increased approximately $7.6 million, or $0.04 per common share, from 2012 to 2013.  This increase was the result of a $7.6 million increase in operating expenses, which includes a $3.4 million increase in litigation fees and expenses and a $3.4 million increase in overall share-based compensation expense.  The increase in the loss per common share is a result of the increased net loss, offset by a 17% increase in weighted average shares outstanding for the period. 

 

Critical Accounting Policies

 

We believe that the following are the critical accounting policies affecting the preparation of our financial   statements:

 

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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.  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 evaluation at December 31, 2014, we determined that no impairment exists with regard to our intangible assets. 

 

Accounting for Share-Based Compensation

 

We calculate the fair value of share-based equity awards to employees, including restricted stock, stock options and restricted stock units, 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. The fair value of share-based awards is determined using various valuation models which 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.  Changes in these subjective assumptions can materially affect the estimate of fair value of share-based compensation and consequently, the related amount recognized as expense in the statements of comprehensive loss. 

 

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.

 

Off-Balance Sheet Transactions and Contractual Obligations

 

As of December 31, 2014, we have outstanding warrants to purchase 1,399,204 shares of common stock that were issued in connection with the sale of an equity security transaction in November 2010.  These warrants have an exercise price of $0.54 per share and expire November 3, 2015.  The estimated aggregate fair value of these warrants at their date of issuance of $355,778 is included in shareholders’ equity in our balance sheets.  Refer to “Non-Plan Options and Warrants” in Note 8 to our financial statements included in Item 8 for information regarding the outstanding warrants.

 

Our contractual obligations and commercial commitments at December 31, 2014 were as follows (see “Lease Commitments” in Note 11 to the financial statements included in Item 8):

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Our cash equivalents, which are primarily highly liquid money market instruments, and our available-for-sale securities, which are mutual funds invested primarily in short-term municipal securities, are subject to market risk, including interest rate risk.  Market risk is the risk of loss arising from adverse changes in market and economic conditions and is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.  We are averse to principal loss and seek to ensure the safety and preservation of our funds by investing in market instruments with limited market risk.  Accordingly, we do not believe there is any material market risk exposure with respect to our market instruments.

 

 

 

 

 

 

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Item 8.  Financial Statements and Supplementary Data.

 

 

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Report of Independent Registered Certified Public Accounting Firm

 

To the Board of Directors and

Shareholders of ParkerVision, Inc.

 

In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of ParkerVision, Inc. at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows that raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ PricewaterhouseCoopers LLP

 

Jacksonville, Florida
March 16, 2015

 

 

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The accompanying notes are an integral part of these financial statements.

 

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The accompanying notes are an integral part of these financial statements.

 

 

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The accompanying notes are an integral part of these financial statements.

 

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The accompanying notes are an integral part of these financial statements.

 

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PARKERVISION, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

DECEMBER 31, 2014, 2013 and 2012 

 

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 segment - wireless technologies and products.  We are in the business of innovating fundamental wireless technologies.   We design, develop and market our proprietary RF technologies and products for use in semiconductor circuits for wireless communication products.   We believe certain patents protecting our proprietary technologies have been broadly infringed by others and therefore our business plan includes enforcement of our intellectual property rights through patent infringement litigation and licensing efforts.

 

2. LIQUIDITY AND GOING CONCERN

 

The accompanying financial statements as of and for the year ended December 31, 2014 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, 2014, we incurred a net loss of approximately $23.6 million and negative cash flows from operations of approximately $18.5 million.  At December 31, 2014, we had an accumulated deficit of approximately $313.6 million and working capital of approximately $10.1 million.  We expect that revenue generated from patent enforcement actions, technology licenses and/or the sale of products in 2015 may not be sufficient to cover our operational expenses, and that our continued losses and use of cash will be funded from our available working capital.  Our current capital resources include cash and available-for-sale securities of approximately $11.2 million at December 31, 2014.  These current capital resources will not be sufficient to support our liquidity requirements through 2015 and further 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.

 

Our future business plans call for continued investment in patent prosecution and enforcement, product development and sales, marketing, and customer support for our technologies and products.  Our ability to generate revenues sufficient to offset costs is subject to successfully enforcing our intellectual property rights, securing new product and licensing customers for our technologies, and successfully supporting those customers in completing their product designs. 

 

The long-term continuation of our business plan beyond 2015 is dependent upon the generation of sufficient revenues from our technologies and/or products to offset expenses.  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.

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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.

 

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, 2014, 2013, and 2012 due to the existence of a full valuation allowance.  Our available-for-sale securities at December 31, 2014 and 2013 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 14).

 

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.   

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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:

 

 

 

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 8.  Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. 

 

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Revenue Recognition

We did not recognize revenue in 2014, 2013, or 2012.   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 7,696,201,  8,888,727,  and 10,482,608 shares of common stock were outstanding at December 31, 2014, 2013, and 2012, respectively.   In addition, unvested RSUs representing 2,184,151,  1,882,384,  and 1,433,842 shares of common stock were outstanding at December 31, 2014, 2013, and 2012, 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

On January 1, 2014, we adopted Accounting Standards Update 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).  ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists thereby reducing diversity in practice.

 

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In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” (“ASU 2014-15”)  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.  PREPAID EXPENSES AND OTHER

 

Prepaid expenses and other current assets consisted of the following at December 31, 2014 and 2013:

 

 

 

 

 

 

 

5. PROPERTY AND EQUIPMENT, NET

 

Property and equipment, at cost, consisted of the following at December 31, 2014 and 2013:

 

 

Depreciation expense related to property and equipment was $165,864,  $174,444, and $185,146 in 2014, 2013, and 2012, respectively. 

 

The cost of our property and equipment includes office and engineering equipment purchased under capital lease agreements totaling $138,323 and $71,925 at December 31, 2014 and 2013, respectively.  Depreciation expense includes depreciation related to capital leases of approximately $31,794,  $28,748, and $24,100 for the periods ended December 31, 2014, 2013, and 2012 respectively.  Accumulated depreciation included accumulated depreciation related to capital leases as of December 31, 2013, 2012, and 2011 of $119,448,  $87,654, and $58,906, respectively.

 

Our capital leases have two to three year terms with aggregate monthly payments of approximately $5,400 and have an approximate annual implicit interest rate of 14.8%.  The principal payments for these capital leases are reflected as cash outflows from financing activities in the accompanying statements of cash flows.    

 

 

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6. INTANGIBLE ASSETS

 

Intangible assets consisted of the following at December 31, 2014 and 2013:

 

 

 

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, 2014 and 2013, 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. 

 

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Amortization expense for the years ended December 31, 2014, 2013, and 2012 is as follows:

 

 

Future estimated amortization expense for intangible assets that have remaining unamortized amounts as of December 31, 2014 are as follows:

 

 

 

 

 

7. INCOME TAXES AND TAX STATUS 

 

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, 2014, 2013, and 2012 is as follows:

 

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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, 2014 and 2013:  

 

 

No current or deferred tax provision or benefit was recorded for 2014, 2013, or 2012 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, 2014, we had cumulative NOL, research and development (“R&D”) tax credit carry-forwards and capital loss carry-forwards for income tax purposes of $278,846,031,  $7,805,727, and $19,310 respectively, which expire in varying amounts from 2015 through 2033.  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 $2,345,918 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, 2014 which would result in limitations of our NOL, capital loss or R&D credit carry-forwards under Section 382. 

 

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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 2014 tax years. 

 

At December 31, 2014, 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, 2014, 2013, and 2012 is as follows:

 

 

 

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, 2014, 2013, and 2012, we did not incur any income tax-related interest income, expense or penalties.   

 

8. 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, 2014, 2013, and 2012, respectively:

 

 

As of December 31, 2014, there was $1,101,088 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 1  year. 

 

 

 

 

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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 5,000,000 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 500,000 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 50,000 shares in any calendar year.  At December 31, 2014, 9,315 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 5,000,000 shares of common stock.   On June 17, 2014, shareholders approved amendments to the September 2011 plan increasing the shares available in the plan by 7,000,000 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 1,500,000 shares in any calendar year.  At December 31, 2014, 6,504,925 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.   We had no unvested RSAs at December 31, 2014, 2013, or 2012 and no RSAs were forfeited during 2014, 2013, or 2012. 

 

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. 

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Plan-Based RSAs and RSU

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, 2014:

 

 

The total fair value of RSAs and RSUs vested under the Stock Plans for the year ended December 31, 2014 is $268,110. 

 

Non-Plan RSUs

RSUs granted outside the Stock Plans represent awards issued as payment for services to consultants.  The shares underlying these non-plan RSUs are unregistered.    

 

 

Non-plan RSUs include 480,000 RSUs granted to a consultant in August 2014 that vest over a one year period beginning September 1, 2014.  As of December 31, 2014, 160,000 of these RSUs have vested.  Non-plan RSUs also include 750,000 RSUs granted in November 2013 to consultants as performance incentives.  These RSUs vest only upon achievement of certain market conditions, as measured based on the closing price of our common stock during a period ending on the earlier of (i) December 31, 2015 or (ii) thirty days following termination of the related consulting agreement.  Upon thirty days’ notice, the consulting agreements may be terminated and any unvested portion of the RSUs will be cancelled.

 

Compensation cost related to the vesting of non-plan RSUs was approximately $819,000,  $1,912,000, and $960,000 for the years ended December 31, 2014, 2013, and 2012 respectively, and is included in general and administrative expense in the table of share-based compensation expense shown above. 

 

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. 

 

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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, 2014:

 

 

The weighted average fair value of option shares granted during the years ended December 31, 2014, 2013, and 2012 was $1.13,  $2.53, and $2.65, respectively.  The total fair value of option shares vested during the years ended December 31, 2014, 2013, and 2012 was $3,069,131,  $3,285,859, and $1,404,456, 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, 2014, 2013, and 2012, respectively, was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

 

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. 

 

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The aggregate intrinsic value of plan-based options exercised during 2014, 2013, and 2012 was $1,081,495,  $648,433,  and $62,945, 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, 2014, 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, 2014:

 

 

The aggregate fair value of non-plan options and warrants vested during the years ended December 31, 2014, 2013, and 2012 was $0,  $129,192, and $166,668, respectively. 

 

Non-plan options and warrants outstanding at December 31, 2014 and 2013 include warrants issued in connection with the sale of equity securities in various public and private placement transactions from 2009 to 2011 that represent 1,399,204 and 1,849,517 shares respectively.  The estimated fair value of these warrants as of December 31, 2014 and 2013 are included in shareholders’ equity in the accompanying balance sheets. 

 

We did not issue any non-plan options or warrants for the year ended December 31, 2014.  The fair value of non-plan options and warrants for the years ended December 31, 2013 and 2012 respectively, was estimated using the Black-Scholes option-pricing model at each measurement date with the following assumptions:

 

 

1 The expected term was determined based on the remaining contractual life of the award on the measurement date.

 

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 life of the award.  

 

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3 The risk-free interest rate for periods equal to the expected term of the award is based on the U.S. Treasury yield curve in effect at the measurement date. 

 

The aggregate intrinsic value of non-plan options and warrants exercised during 2014, 2013, and 2012 was $1,793,694,  $3,038,635, and $3,831,971 respectively. 

 

Options and Warrants by Price Range

The options and warrants outstanding at December 31, 2014 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:

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, 2014, 2013, 2012, and 2011, was $1,655,550,  $1,147,380, and $1,381,694 respectively.  No tax benefit was realized for the tax deductions from exercise of the share-based payment arrangements for the years ended December 31, 2014, 2013, and 2012 as the benefits were fully offset by a valuation allowance (see Note 7). 

 

9.  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, 2013, 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 10).

 

Common Stock and Warrants

We have filed several shelf registration statements (“Shelf”) with the SEC for purposes of providing flexibility to raise funds from the offering of various securities over a period of three years, subject to market conditions.   Securities offered under the shelf registration statements were used to fund working capital, capital expenditures, vendor purchases, and other capital needs.  Offerings made under a Shelf during 2013 and 2012 are included in the table below.  As of December 31, 2014 and 2013, there were no securities available under any Shelf.

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The following table presents a summary of completed equity offerings for the years ended December 31, 2014, 2013, and 2012 (in thousands, except for per share amounts):

 

On December 23, 2014, we entered into a warrant subscription agreement with 1624 PV, LLC (“1624”) for the sale of three warrants, each for the purchase of up to 1,884,058 shares of our common stock at exercise prices of $1.50,  $2.50 and $3.50, respectively.  The warrants were sold for an aggregate purchase price of $1.3 million.  The transaction was consummated on January 15, 2015. In addition, in January 2015, we issued 250,000 shares of unregistered common stock to our securities counsel, Graubard Miller in exchange for a $250,000 prepaid retainer for legal services. 

 

10.  SHAREHOLDER PROTECTION RIGHTS AGREEMENT 

 

On November 21, 2005, we adopted a Shareholder Protection Rights Agreement (“Rights Agreement”) which calls 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 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 $45 per right (the “Exercise Price”), subject to adjustment and payable in cash. 

 

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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 of directors, liquidation, dissolution and winding up preferences, voting rights and will rank junior to other securities of ParkerVision unless otherwise determined by the board of directors.

The rights may be redeemed upon approval of the board of directors at a redemption price of $0.01.  The Rights Agreement expires on November 21, 2015.

 

11. 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, 2014, 2013, and 2012 was $523,454,  $476,782,  and $515,437, 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, 2014, 2013, and 2012 was $191,527,  $235,370,  and $232,659, 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, 2014 were as follows:

 

 

Legal Proceedings

 

From time to time, we are subject to legal proceedings and claims which arise in the ordinary course of our business.   We believe, based on advice from our outside legal counsel, that the final disposition of such matters will not have a material adverse impact on our financial position, results of operation or

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liquidity.   In addition, we are subject to the following legal proceedings:

 

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 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.  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 have appealed this decision to the U.S. Court of Appeals for the Federal Circuit.  Qualcomm has filed a counter-appeal on the issues of validity and damages.  We and Qualcomm have both filed our respective briefs with the appellate court. No date has yet been set for a hearing by the U.S. Court of Appeals. The collection of damages from Qualcomm in this action, if any, will be dependent upon the final disposition of this case. 

 

ParkerVision vs. Qualcomm, HTC, and Samsung

On May 1, 2014, we filed a complaint in the United States District Court of the Middle District of Florida against Qualcomm, Qualcomm Atheros, Inc., HTC Corporation and HTC America, Inc. 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 Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung Telecommunications America, LLC as defendants (all parties collectively, “Defendants”).  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.  Discovery in this case is ongoing with a claim construction hearing scheduled for August 12, 2015 and a trial start date scheduled for August 1, 2016.

 

RPX and Farmwald vs. ParkerVision

In June and July 2014, RPX Corporation and Michael Farmwald (collectively, the “Petitioners”) filed petitions for Inter Partes review (“IPR”) with the Patent Trial and Appeal Board of the United States Patent and Trademark Office (“PTAB”) seeking to invalidate certain claims related to each of the four patents in our July 2011 district court case against Qualcomm.   We filed our preliminary responses to these petitions in September and October 2014.  On December 18, 2014, the PTAB issued a decision to institute trial on certain claims included in three of the four IPR petitions, but denied institution of one of the challenged claims.  On January 8, 2015, the PTAB also denied institution of trial for the fourth IPR petition.  Our final responses to the instituted petitions are scheduled to be filed on March 19, 2015 with the Petitioners’ reply scheduled to be filed on June 19, 2015.  Oral arguments on these remaining IPR petitions are scheduled for August 27, 2015. 

 

Maxtak Capital Advisors LLC vs. ParkerVision

On December 28, 2011, Maxtak Capital Advisors LLC, Maxtak Partners LP and David Greenbaum (the “Plaintiffs”) filed a complaint in the United States District Court of New Jersey against us, our chief executive officer, Jeffrey Parker and one of our directors, Robert Sterne, alleging common law fraud and negligent misrepresentation of material facts concerning the effectiveness of our technology and our success in securing customers.  The Plaintiffs were seeking unspecified damages, including attorneys’ fees and costs.  In October 2012, the court granted our motion to transfer the case to the Middle District of

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Florida where discovery commenced. 

 

In July 2014, we conducted a demonstration of our d2p technology for the Plaintiffs.  As a result of the demonstration and the discovery conducted to date, the parties entered into a confidential resolution of this action.  In connection with the resolution, the Plaintiffs stated that they agree and acknowledge that the d2p technology works in a manner consistent with our representations during the period covered by the litigation.  The Plaintiffs further agreed and acknowledged that their allegations with regard to the efficacy of the d2p technology and all statements in their complaint attributed to or based upon the pvnotes website, Michael Farmwald, Barbara Paldus, Alfred Riddle, Steven Cripps and Joy Laskar with regard to the efficacy of our d2p technology are without merit.  The financial terms of the confidential resolution had no impact on our financial position, results of operations or liquidity.

 

12. RELATED-PARTY TRANSACTIONS

 

We paid approximately $1,705,000,  $587,000, and $906,000 in 2014, 2013, and 2012, respectively, for patent-related legal services to a law firm, of which Robert Sterne, one of our directors since September 2006, is a partner. 

 

On September 19, 2012 we sold 300,000 shares of our common stock to entities controlled by Messrs. Austin W. Marxe and David M. Greenhouse (“Marxe and Greenhouse Entities”) at a price of $2.30 per share in an offering off our September 2012 Shelf.  On April 18, 2012 we sold 2,857,143 shares of our common stock to Marxe and Greenhouse Entities at a price of $1.05 per share in an offering off our September 2009 Shelf.  Messrs. Marxe and Greenhouse are considered related parties under the rules of NASDAQ as they were beneficial owners of more than 5% of our outstanding stock at the time of the transactions.

 

13.  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.

 

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14.  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, 2014 and 2013 are:

 

 

 

 

15.  QUARTERLY FINANCIAL DATA (UNAUDITED) 

 

The quarterly financial data presented below is in thousands except for per share data:

 

 

 

 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

Under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, “disclosure controls and procedures” are controls and other procedures that are designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosures.  Our management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014. 

Based on such evaluation, our chief executive officer and our chief financial officer have concluded that as of December 31, 2014, our disclosure controls and procedures were effective.  

 

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. Under Rules 13a-15(f) and 15d-15(f) of the Exchange Act, “internal control over financial reporting’’ is defined as a process designed by, or under the supervision of, our chief executive officer and our chief financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect our transactions and our dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting; provide reasonable assurance  that receipts and expenditures of the company are made only in accordance with authorizations of management and directors; and provide reasonable assurance regarding the prevention or the timely detection of the unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. 

Management, with the participation of our chief executive officer and our chief financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 using the criteria established in  Internal Control—Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, management concluded, as of December 31, 2014, our internal control over financial reporting was effective..

 

PricewaterhouseCoopers LLP, the independent registered certified public accounting firm that audited the financial statements included in this Form 10-K, has also issued an attestation report on our internal

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control over financial reporting.  The attestation report is set forth in their Report of Independent Registered Certified Public Accounting Firm, which is included in Item 8 of this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

During the fiscal quarter ended December 31, 2014, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

Item 9B.  Other Information.

 

In accordance with and satisfaction of the requirements of Form 8-K, we include the following disclosure:

 

On March 16, 2015, we issued a press release announcing our results of operations and financial condition for the fourth quarter and year ended December 31, 2014.  The press release is attached hereto as Exhibit 99.1.

 

The foregoing information, including the exhibit related thereto, is furnished in response to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any disclosure document of the Registrant, except as shall be expressly set forth by specific reference in such document.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

The information required by this item is incorporated by reference to our Definitive Proxy Statement to be filed with the Commission in connection with our 2015 Annual Meeting of Shareholders no later than 120 days after the end of the fiscal year covered by this report  (our “2015 Proxy Statement”).    

Item 11. Executive Compensation. 

 

The information required by this item is incorporated by reference to our 2015 Proxy Statement.    

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The information required by this item is incorporated by reference to our 2015 Proxy Statement.    

Item 13. Certain Relationships and Related Transactions and Director Independence.

 

The information required by this item is incorporated by reference to our 2015 Proxy Statement.

 

Item 14.  Principal Accountant Fees and Services.

 

The information required by this item is incorporated by reference to our 2015 Proxy Statement.

 

 

 

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PART IV

 

Item 15. Exhibits and Financial Statement Schedule.

 

(a) Documents filed as part of this report:

 

(1) Financial statements:

 

Balance Sheets as of December 31, 2014 and 2013

 

Statements of Comprehensive Loss for the years ended December 31, 2014, 2013, and 2012

 

Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013, and 2012

 

Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012

 

Notes to Financial Statements for the years ended December 31, 2014, 2013, and 2012 

 

(2) Financial statement schedules:

 

Schedule II – Valuation and Qualifying Accounts

 

Schedules other than those listed have been omitted since they are either not required, not applicable or the information is otherwise included.

 

(3) Exhibits.

 

 

*   Filed herewith

** Management contract or compensatory plan or arrangement.

*** Portions of these exhibits have been omitted pursuant to a request for confidential treatment filed separately with the SEC.

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SIGNATURES

 

Pursuant to the requirements of Section 13 of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

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SCHEDULE II

 

PARKERVISION, INC. AND SUBSIDIARY

 

VALUATION AND QUALIFYING ACCOUNTS

 

 

 

 

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EXHIBIT INDEX

 

 

 

*** Portions of these exhibits have been omitted pursuant to a request for confidential treatment filed separately with the SEC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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