Parkervision Inc: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Statements

We believe that it is important to communicate our future expectations to our shareholders and to the public. This quarterly report contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our future plans, objectives, and expectations contained in this Item. When used in this quarterly report and in future filings by us with the Securities and Exchange Commission (“SEC”), the words or phrases “expects”, “will likely result”, “will continue”, “is anticipated”, “estimated” or similar expressions are intended to identify “forward-looking statements.” Readers are cautioned not to place undue reliance on such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected, including the risks and uncertainties identified in our annual report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report”) and in this Item 2 of Part I of this quarterly report. Examples of such risks and uncertainties include general economic and business conditions, competition, unexpected changes in technologies and technological advances, the timely development and commercial acceptance of new products and technologies, reliance on key suppliers, reliance on our intellectual property, the outcome of our intellectual property litigation and the ability to obtain adequate financing in the future. We have no obligation to publicly release the results of any revisions which may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements.

Corporate Website

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

Overview

We have invented and developed proprietary radio frequency (“RF”) technologies and integrated circuits based on those technologies, and we license those technologies to third parties for use in wireless communication products. We have expended significant financial and other resources to research and develop our RF technologies and to obtain patent protection for those technologies in the United States of America (“U.S.”) and certain foreign jurisdictions. We believe certain patents protecting our proprietary technologies have been broadly infringed by others and therefore the primary focus of our business plan is the enforcement of our intellectual property rights through patent licensing and infringement litigation efforts. We currently have patent enforcement actions ongoing in various U.S. district courts against mobile handset, smart television, and other WiFi product providers, as well as semiconductor suppliers, for the infringement of several of our RF patents. We have made significant investments in developing and protecting our technologies, the returns on which are dependent upon the generation of future revenues for realization.

Recent Events

Legal Proceedings

On November 6, 2023, we held oral arguments in our appeal of the ParkerVision v. Qualcomm district court rulings that ended our district court case in Orlando, Florida in March 2022. We are currently awaiting a ruling from the appellate court.

In February 2023, we entered into a confidential patent license and settlement agreement and in March 2023, we received a payment of $25 million with respect thereto. These proceeds were fully utilized for repayment of contingent legal fees and expenses and outstanding principal on our contingent payment obligation with Brickell (see “Brickell Agreement” below).

In February 2023, we dismissed our two patent enforcement actions against Intel Corporation. Refer to Note 11 to our unaudited condensed consolidated financial statements included in this quarterly report for a complete discussion of our patent enforcement proceedings.

Brickell Agreement

We repaid Brickell $13.9 million in May 2023 from our patent licensing and settlement proceeds. On May 4, 2023, we entered into a confidential letter agreement with Brickell whereby Brickell provided $5.0 million in new funding to us on substantially similar repayment terms as those set forth in our existing contingent payment agreement, but at a lower interest rate. The new funding will be used for operations. On August 14, 2023, our funding agreement with Brickell was replaced with a secured, non-recourse note and a prepaid forward purchase agreement. The economics of the new agreements are substantively the same as the prior funding agreement, but for a lower simple interest rate.

Liquidity and Capital Resources

We generated cash from operations of approximately $11.5 million for the nine months ended September 30, 2023 and used cash for operations of $2.4 million for the nine months ended September 30, 2022. The increase in cash generated from operations from 2022 to 2023 is primarily due to proceeds received from the patent license and settlement agreement entered into in February 2023, net of contingent legal fees and expenses paid.

We made payments of $13.9 million on our secured contingent payment obligation during the nine months ended September 30, 2023, and paid approximately $0.31 million and $0.07 in convertible note maturities and related party debt obligations during the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, we received aggregate proceeds from new borrowings under our secured contingent payment obligation of $5.0 million and aggregate net proceeds from issuance of convertible debt, equity financings and option exercises of approximately $0.9 million, compared to approximately $1.7 million in proceeds from issuance of convertible debt, equity financings and option exercises for the nine months ended September 30, 2022.

At September 30, 2023, we had cash and cash equivalents of approximately $3.3 million and an accumulated deficit of $432.6 million. A significant amount of future proceeds that we may receive from our patent enforcement and licensing programs will first be utilized to repay borrowings and legal fees and expenses under our contingent funding arrangements. In addition, we have approximately $1.05 million in convertible debt maturities over the next twelve months. These circumstances raise substantial doubt about our ability to continue to operate as a going concern for a period of one year following the issue date of these condensed consolidated financial statements.

Our current capital resources are not sufficient to meet our liquidity needs for the next twelve months and we may be required to seek additional capital. Our ability to meet our liquidity needs for the next twelve months is dependent upon (i) our ability to successfully negotiate licensing agreements and/or settlements relating to the use of our technologies by others in excess of our contingent payment obligations, (ii) our ability to control operating costs, (iii) our ability to successfully negotiate extensions to the maturity date for certain convertible notes, and/or (iv) our ability to obtain additional debt or equity financing. We expect that proceeds received by us from patent enforcement actions and technology licenses over the next twelve months may not alone be sufficient to cover our working capital requirements.

We expect to continue to invest in the support of our patent licensing and enforcement program. The long-term continuation of our business plan is dependent upon the generation of sufficient cash flows from our technologies and/or products to offset expenses and debt obligations. In the event that we do not generate sufficient cash flows, 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 cash flows, raise additional capital through debt or equity financings or contingent fee arrangements, and/or reduce operating costs will have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business objectives.

Financial Condition

Our working capital increased approximately $2.8 million from December 31, 2022 to September 30, 2023. This increase in working capital is primarily the result of a $3.2 million increase in cash and cash equivalents resulting from new borrowings under our secured contingent payment obligation, partially offset by an increase in current liabilities from the reclassification of an additional $0.4 million of convertible notes that mature within the next twelve months, from long-term to current liabilities.

Our long-term liabilities decreased $9.2 million from December 31, 2022 to September 30, 2023, primarily due to a $13.9 million repayment on our secured contingent payment obligation, a $0.2 million decrease in the fair value of our contingent payment obligations, the reclassification of an additional $0.4 million of convertible notes that mature within the next twelve months, from long-term to current liabilities, and the conversion of $0.2 million in convertible notes by the holder, offset by $5.0 million of new borrowings under our secured contingent payment obligation and the issuance of $0.8 million of new convertible notes.

Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Revenue and Cost of Sales

We reported no licensing revenue for the three and nine months ended September 30, 2022 or the three months ended September 30, 2023. Licensing revenue was $25.0 million for the nine months ended September 30, 2023, resulting from a patent license and settlement agreement entered into in February 2023. The parties' performance obligations were met in February 2023 and we recognized revenue at that time. Cost of sales for the three and nine months ended September 30, 2023 and 2022 consists of amortization expense related to the patents covered under license agreements. Although we anticipate additional revenue to result in 2024 and beyond from our patent enforcement actions, the amount and timing is highly unpredictable and there can be no assurance that we will achieve our anticipated results.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses consist primarily of litigation fees and expenses, personnel and related costs, including share-based compensation, for executive, Board, finance and accounting and technical support personnel for our patent enforcement program, and costs incurred for insurance and outside professional fees for accounting, legal and business consulting services.

Our selling, general and administrative expenses decreased by approximately $0.8 million, or 46.1%, during the three months ended September 30, 2023 when compared to the same period in 2022. This is primarily the result of a $0.7 million decrease in share-based compensation.

Our selling, general and administrative expenses increased by approximately $8.9 million, or 168.2%, during the nine months ended September 30, 2023 when compared to the same period in 2022. This is primarily the result of a $10.7 million increase in litigation fees and expenses and is partially offset by a $1.9 million decrease in share-based compensation.

The decrease in our share-based compensation for the three and nine months ended September 30, 2023 is primarily the result of share-based compensation expense attributed to nonqualified stock options awarded to executives, key employees and non-employee directors in 2021 being fully recognized as of December 31, 2022. As of September 30, 2023, we had $0.1 million of total unrecognized compensation cost related to all non-vested share-based compensation awards that is expected to be recognized over a period of approximately 0.6 years.

The increase in litigation fees and expenses from 2022 to 2023 is the result of contingent legal fees and expenses recognized in 2023 in conjunction with the confidential patent license and settlement agreement reached in February 2023.

Change in Fair Value of Contingent Payment Obligations

We have elected to measure our secured and unsecured contingent payment obligations at fair value which is based on significant unobservable inputs. We estimated the fair value of our secured contingent payment obligations using a probability-weighted income approach based on the estimated present value of projected future cash outflows using a risk-adjusted discount rate. Increases or decreases in the significant unobservable inputs could result in significant increases or decreases in fair value. Generally, changes in fair value are a result of changes in estimated amounts and timing of projected future cash flows due to increases in funded amounts, passage of time, and changes in the probabilities based on the status of the funded actions.

For the three months ended September 30, 2023, we recorded an aggregate increase in the fair value of our secured and unsecured contingent payment obligations of approximately $2.9 million compared to an aggregate decrease in the fair value of our secured and unsecured contingent payment obligations of $1.3 million three months ended September 30, 2022. For the nine months ended September 30, 2023, we recorded an aggregate decrease in the fair value of our secured and unsecured contingent payment obligations of approximately $0.2 million compared to an aggregate decrease in the fair value of our secured and unsecured contingent payment obligations of $0.9 million nine months ended September 30, 2022. The change in fair value for the three and nine months ended September 30, 2023 was primarily the result of changes in the estimated amounts and timing of projected future cash flows due to changes in probabilities and time frames based on the status of various patent infringement actions, as well as the impact of the revised funding agreements with Brickell. The decrease in fair value for the three and nine months ended September 30, 2022 was primarily the result of increasing interest rates, partially offset by increases resulting from changes in the estimated amounts and timing of projected future cash flows due to changes in probabilities and time frames based on the status of various patent infringement actions.

Off-Balance Sheet Transactions, Arrangements and Other Relationships

As of September 30, 2023, we had outstanding warrants to purchase approximately 10.3 million shares of our common stock. The estimated grant date fair value of these warrants of approximately $3.2 million is included in shareholders’ deficit in our condensed consolidated balance sheets. The outstanding warrants have a weighted average exercise price of $0.75 per share and a weighted average remaining life of approximately 1.3 years.

Critical Accounting Policies

There have been no changes in accounting policies from those stated in our 2022 Annual Report. We do not expect any newly effective accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors disclosed in Item 1A of Part I of our Annual Report. In addition to the information in this quarterly report, the risk factors disclosed in our Annual Report 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.