UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
|
|
|
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the
quarterly period ended September 30,
2019
or
|
|
|
☐
|
Transition
Report Pursuant Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the
transition period from
to
.
Commission
file number 001-36467
RESONANT
INC.
(Exact name of
registrant as specified in its charter)
|
|
|
|
Delaware
|
|
45-4320930
|
(State or other jurisdiction
of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification
No.)
|
175 Cremona
Drive, Suite 200
Goleta,
California 93117
(Address of
principal executive offices, zip code)
(805)
308-9803
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act:
|
|
|
|
|
|
Title of each class
|
|
Trading
Symbol(s)
|
|
Name of each exchange on which registered
|
Common Stock, $0.001 par
value
|
|
RESN
|
|
The NASDAQ Stock Market
LLC
|
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 of 1934 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 ý
No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted 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
such files). Yes ý
No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in
Rule 12b-2 of the Exchange Act:
|
|
|
|
|
|
Large accelerated
filer
|
☐
|
|
Accelerated
filer
|
ý
|
Non-accelerated
filer
|
☐
|
|
Smaller reporting
company
|
ý
|
|
|
|
Emerging growth
company
|
ý
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ý
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐
No ý
As of
November 5, 2019, the issuer had 32,534,699 shares of common
stock issued and outstanding.
RESONANT
INC.
TABLE OF
CONTENTS
PART I:
FINANCIAL INFORMATION
Item
1.
Financial
Statements
RESONANT
INC.
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
14,663,000
|
|
|
$
|
4,394,000
|
|
Investments
held-to-maturity
|
—
|
|
|
16,863,000
|
|
Accounts
receivable
|
2,006,000
|
|
|
165,000
|
|
Prepaid expenses and other
current assets
|
262,000
|
|
|
364,000
|
|
TOTAL CURRENT
ASSETS
|
16,931,000
|
|
|
21,786,000
|
|
|
|
|
|
PROPERTY AND
EQUIPMENT
|
|
|
|
|
|
Property and
equipment
|
4,143,000
|
|
|
3,784,000
|
|
Less: Accumulated
depreciation and amortization
|
(2,433,000
|
)
|
|
(1,797,000
|
)
|
PROPERTY AND EQUIPMENT,
NET
|
1,710,000
|
|
|
1,987,000
|
|
|
|
|
|
NONCURRENT
ASSETS
|
|
|
|
|
|
Intangible assets,
net
|
1,511,000
|
|
|
1,374,000
|
|
Restricted cash
|
211,000
|
|
|
211,000
|
|
Goodwill
|
808,000
|
|
|
817,000
|
|
Operating lease right-of-use
assets
|
2,642,000
|
|
|
—
|
|
Other assets
|
68,000
|
|
|
69,000
|
|
TOTAL NONCURRENT
ASSETS
|
5,240,000
|
|
|
2,471,000
|
|
TOTAL
ASSETS
|
$
|
23,881,000
|
|
|
$
|
26,244,000
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts payable
|
$
|
948,000
|
|
|
$
|
695,000
|
|
Accrued expenses
|
272,000
|
|
|
464,000
|
|
Accrued salaries and payroll
related expenses
|
1,751,000
|
|
|
1,835,000
|
|
Deferred revenue
|
2,109,000
|
|
|
271,000
|
|
Operating lease liabilities,
current
|
600,000
|
|
|
—
|
|
TOTAL CURRENT
LIABILITIES
|
5,680,000
|
|
|
3,265,000
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
Deferred rent
|
—
|
|
|
81,000
|
|
Operating lease liabilities,
net of current portion
|
2,217,000
|
|
|
—
|
|
TOTAL
LIABILITIES
|
7,897,000
|
|
|
3,346,000
|
|
|
|
|
|
Commitments and contingencies
(Note 11)
|
0
|
|
|
0
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
Common stock, $0.001 par
value, 100,000,000 authorized and 32,489,179 outstanding as
of September 30, 2019, and 47,000,000 authorized and
27,391,290 outstanding as of December 31, 2018
|
32,000
|
|
|
27,000
|
|
Preferred stock, $0.001 par
value, 3,000,000 authorized and none outstanding as of September
30, 2019 and December 31, 2018
|
—
|
|
|
—
|
|
Additional paid-in
capital
|
130,623,000
|
|
|
115,450,000
|
|
Accumulated other
comprehensive loss
|
(25,000
|
)
|
|
(15,000
|
)
|
Accumulated
deficit
|
(114,646,000
|
)
|
|
(92,564,000
|
)
|
TOTAL STOCKHOLDERS’
EQUITY
|
15,984,000
|
|
|
22,898,000
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
23,881,000
|
|
|
$
|
26,244,000
|
|
See Accompanying
Notes to Condensed Consolidated Financial Statements
RESONANT
INC.
Condensed
Consolidated Statements of Comprehensive Loss
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
REVENUES
|
|
$
|
79,000
|
|
|
$
|
115,000
|
|
|
$
|
276,000
|
|
|
$
|
396,000
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
4,609,000
|
|
|
3,584,000
|
|
|
13,628,000
|
|
|
10,185,000
|
|
Sales, marketing and
administration
|
|
2,952,000
|
|
|
3,002,000
|
|
|
8,931,000
|
|
|
8,500,000
|
|
TOTAL OPERATING
EXPENSES
|
|
7,561,000
|
|
|
6,586,000
|
|
|
22,559,000
|
|
|
18,685,000
|
|
NET OPERATING
LOSS
|
|
(7,482,000
|
)
|
|
(6,471,000
|
)
|
|
(22,283,000
|
)
|
|
(18,289,000
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest and investment
income
|
|
42,000
|
|
|
177,000
|
|
|
220,000
|
|
|
323,000
|
|
Other expense
|
|
(7,000
|
)
|
|
8,000
|
|
|
(18,000
|
)
|
|
4,000
|
|
TOTAL OTHER INCOME,
NET
|
|
35,000
|
|
|
185,000
|
|
|
202,000
|
|
|
327,000
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME
TAXES
|
|
(7,447,000
|
)
|
|
(6,286,000
|
)
|
|
(22,081,000
|
)
|
|
(17,962,000
|
)
|
Provision for (benefit from)
income taxes
|
|
—
|
|
|
(11,000
|
)
|
|
1,000
|
|
|
(19,000
|
)
|
NET LOSS
|
|
$
|
(7,447,000
|
)
|
|
$
|
(6,275,000
|
)
|
|
$
|
(22,082,000
|
)
|
|
$
|
(17,943,000
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment, net of tax
|
|
(16,000
|
)
|
|
10,000
|
|
|
(10,000
|
)
|
|
(5,000
|
)
|
COMPREHENSIVE
LOSS
|
|
$
|
(7,463,000
|
)
|
|
$
|
(6,265,000
|
)
|
|
$
|
(22,092,000
|
)
|
|
$
|
(17,948,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE - BASIC
AND DILUTED
|
|
$
|
(0.26
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.73
|
)
|
Weighted average shares
outstanding — basic and diluted
|
|
29,169,495
|
|
|
27,006,046
|
|
|
28,295,248
|
|
|
24,645,658
|
|
See Accompanying
Notes to Condensed Consolidated Financial Statements
RESONANT
INC.
Condensed
Consolidated Statements of Stockholders’ Equity
For the
Three and Nine Months
Ended September 30, 2019 and
2018
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other Comprehensive Loss
|
|
Total
Stockholders’
Equity
|
|
Shares
|
|
Amount
|
|
|
|
Balance,
January 1, 2019
|
27,391,290
|
|
|
$
|
27,000
|
|
|
$
|
115,450,000
|
|
|
$
|
(92,564,000
|
)
|
|
$
|
(15,000
|
)
|
|
$
|
22,898,000
|
|
Vesting of restricted stock
units
|
116,997
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,040,000
|
|
|
—
|
|
|
—
|
|
|
1,040,000
|
|
Exercise of
warrants
|
140,000
|
|
|
—
|
|
|
400,000
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,137,000
|
)
|
|
—
|
|
|
(7,137,000
|
)
|
Foreign currency translation
adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,000
|
)
|
|
(10,000
|
)
|
Balance,
March 31, 2019
|
27,648,287
|
|
|
$
|
27,000
|
|
|
$
|
116,890,000
|
|
|
$
|
(99,701,000
|
)
|
|
$
|
(25,000
|
)
|
|
$
|
17,191,000
|
|
Vesting of restricted stock
units
|
334,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,460,000
|
|
|
—
|
|
|
—
|
|
|
1,460,000
|
|
Exercise of
warrants
|
346,809
|
|
|
1,000
|
|
|
986,000
|
|
|
—
|
|
|
—
|
|
|
987,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,498,000
|
)
|
|
—
|
|
|
(7,498,000
|
)
|
Foreign currency translation
adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,000
|
|
|
16,000
|
|
Balance,
June 30, 2019
|
28,329,870
|
|
|
$
|
28,000
|
|
|
$
|
119,336,000
|
|
|
$
|
(107,199,000
|
)
|
|
$
|
(9,000
|
)
|
|
$
|
12,156,000
|
|
Vesting of restricted stock
units
|
198,749
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,351,000
|
|
|
—
|
|
|
—
|
|
|
1,351,000
|
|
Issuance of common
stock
|
3,960,560
|
|
|
4,000
|
|
|
9,936,000
|
|
|
—
|
|
|
—
|
|
|
9,940,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,447,000
|
)
|
|
—
|
|
|
(7,447,000
|
)
|
Foreign currency translation
adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,000
|
)
|
|
(16,000
|
)
|
Balance,
September 30, 2019
|
32,489,179
|
|
|
$
|
32,000
|
|
|
$
|
130,623,000
|
|
|
$
|
(114,646,000
|
)
|
|
$
|
(25,000
|
)
|
|
$
|
15,984,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other Comprehensive Loss
|
|
Total
Stockholders’
Equity
|
|
Shares
|
|
Amount
|
|
|
|
Balance,
January 1, 2018
|
19,511,276
|
|
|
$
|
20,000
|
|
|
$
|
88,447,000
|
|
|
$
|
(67,748,000
|
)
|
|
$
|
(7,000
|
)
|
|
$
|
20,712,000
|
|
Vesting of restricted stock
units
|
184,818
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,108,000
|
|
|
—
|
|
|
—
|
|
|
1,108,000
|
|
Sales of common stock, net of
offering costs
|
5,714,286
|
|
|
6,000
|
|
|
18,375,000
|
|
|
—
|
|
|
—
|
|
|
18,381,000
|
|
Exercise of
warrants
|
15,000
|
|
|
—
|
|
|
43,000
|
|
|
—
|
|
|
—
|
|
|
43,000
|
|
Common stock issued in
exchange of warrants
|
242,913
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,716,000
|
)
|
|
—
|
|
|
(5,716,000
|
)
|
Foreign currency translation
adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,000
|
|
|
21,000
|
|
Balance,
March 31, 2018
|
25,668,293
|
|
|
$
|
26,000
|
|
|
$
|
107,973,000
|
|
|
$
|
(73,464,000
|
)
|
|
$
|
14,000
|
|
|
$
|
34,549,000
|
|
Vesting of restricted stock
units
|
293,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,639,000
|
|
|
—
|
|
|
—
|
|
|
1,639,000
|
|
Sales of common stock, net of
offering costs
|
857,142
|
|
|
1,000
|
|
|
2,808,000
|
|
|
—
|
|
|
—
|
|
|
2,809,000
|
|
Exercise of
warrants
|
74,142
|
|
|
—
|
|
|
217,000
|
|
|
—
|
|
|
—
|
|
|
217,000
|
|
Exercise of stock
options
|
4,692
|
|
|
—
|
|
|
14,000
|
|
|
—
|
|
|
—
|
|
|
14,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,952,000
|
)
|
|
—
|
|
|
(5,952,000
|
)
|
Foreign currency translation
adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,000
|
)
|
|
(36,000
|
)
|
Balance,
June 30, 2018
|
26,898,267
|
|
|
$
|
27,000
|
|
|
$
|
112,651,000
|
|
|
$
|
(79,416,000
|
)
|
|
$
|
(22,000
|
)
|
|
$
|
33,240,000
|
|
Vesting of restricted stock
units
|
142,447
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based
compensation
|
—
|
|
|
—
|
|
|
1,349,000
|
|
|
—
|
|
|
—
|
|
|
1,349,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,275,000
|
)
|
|
—
|
|
|
(6,275,000
|
)
|
Foreign currency translation
adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
10,000
|
|
Balance,
September 30, 2018
|
27,040,714
|
|
|
$
|
27,000
|
|
|
$
|
114,000,000
|
|
|
$
|
(85,691,000
|
)
|
|
$
|
(12,000
|
)
|
|
$
|
28,324,000
|
|
See Accompanying
Notes to Condensed Consolidated Financial Statements
RESONANT
INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine months
ended September 30,
|
|
2019
|
|
2018
|
CASH FLOWS
FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net Loss
|
$
|
(22,082,000
|
)
|
|
$
|
(17,943,000
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
735,000
|
|
|
600,000
|
|
Benefit from income
taxes
|
—
|
|
|
(41,000
|
)
|
Stock-based
compensation
|
4,200,000
|
|
|
3,958,000
|
|
Non-cash loss on disposal of
assets
|
1,000
|
|
|
8,000
|
|
Non-cash investment
income
|
—
|
|
|
(63,000
|
)
|
Non-cash patent
write-off
|
104,000
|
|
|
87,000
|
|
Right-of-use asset
amortization
|
440,000
|
|
|
—
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
Accounts
receivable
|
(1,841,000
|
)
|
|
(2,000
|
)
|
Prepaid expenses and other
current assets
|
102,000
|
|
|
206,000
|
|
Other assets
|
1,000
|
|
|
(50,000
|
)
|
Accounts payable
|
280,000
|
|
|
88,000
|
|
Accrued expenses
|
101,000
|
|
|
(82,000
|
)
|
Accrued salaries and payroll
related expenses
|
(433,000
|
)
|
|
(437,000
|
)
|
Operating lease
liabilities
|
(346,000
|
)
|
|
—
|
|
Deferred revenue
|
1,838,000
|
|
|
46,000
|
|
Deferred rent
|
—
|
|
|
47,000
|
|
Net cash used in operating
activities
|
(16,900,000
|
)
|
|
(13,578,000
|
)
|
CASH FLOWS
FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Proceeds from sale of fixed
assets
|
—
|
|
|
16,000
|
|
Purchases of property and
equipment
|
(715,000
|
)
|
|
(865,000
|
)
|
Expenditures for
patents
|
(306,000
|
)
|
|
(157,000
|
)
|
Redemption of investments
held-to-maturity
|
29,295,000
|
|
|
39,590,000
|
|
Purchase of investments
held-to-maturity
|
(12,432,000
|
)
|
|
(48,411,000
|
)
|
Net cash provided by (used
in) investing activities
|
15,842,000
|
|
|
(9,827,000
|
)
|
|
|
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Net proceeds from the sale of
common stock from private placement offering
|
9,940,000
|
|
|
—
|
|
Net proceeds from the sale of
common stock from underwritten public offering
|
—
|
|
|
21,190,000
|
|
Proceeds from exercise of
stock options
|
—
|
|
|
14,000
|
|
Proceeds from exercise of
warrants
|
1,387,000
|
|
|
260,000
|
|
Net cash provided by
financing activities
|
11,327,000
|
|
|
21,464,000
|
|
Effects of exchange rates on
cash, cash equivalents and restricted cash
|
—
|
|
|
(2,000
|
)
|
NET INCREASE (DECREASE) IN
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
10,269,000
|
|
|
(1,943,000
|
)
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH — Beginning of period
|
4,605,000
|
|
|
19,624,000
|
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH — End of period
|
$
|
14,874,000
|
|
|
$
|
17,681,000
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
|
|
|
|
|
|
Taxes Paid
|
$
|
1,000
|
|
|
$
|
3,000
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES
|
|
|
|
Restricted stock units issued
in settlement of liability
|
$
|
349,000
|
|
|
$
|
1,004,000
|
|
Property and equipment
included in accounts payable
|
$
|
37,000
|
|
|
$
|
124,000
|
|
Property and equipment
included in accrued liabilities
|
$
|
16,000
|
|
|
$
|
282,000
|
|
Patents included in accounts
payable
|
$
|
70,000
|
|
|
$
|
32,000
|
|
Patents included in accrued
liabilities
|
$
|
2,000
|
|
|
$
|
—
|
|
The following
table provides a reconciliation of cash, cash equivalents and
restricted cash reported within the Condensed Consolidated Balance
Sheets to the total of the same such amounts shown
above:
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
2019
|
|
2018
|
Cash and cash
equivalents
|
$
|
14,663,000
|
|
|
$
|
17,470,000
|
|
Restricted cash
|
211,000
|
|
|
211,000
|
|
Total cash, cash equivalents
and restricted cash
|
$
|
14,874,000
|
|
|
$
|
17,681,000
|
|
See Accompanying
Notes to Condensed Consolidated Financial Statements
RESONANT INC.
Notes to
Condensed Consolidated Financial Statements
NOTE
1—ORGANIZATION AND DESCRIPTION OF BUSINESS
Overview
Resonant Inc.
is a late-stage development company located in Goleta,
California. We were incorporated in Delaware in
January 2012 as a wholly owned subsidiary of Superconductor
Technologies Inc., or STI. Resonant LLC, a limited liability
company, was formed in California in May 2012. We changed our
form of ownership from a limited liability company to a corporation
in an exchange transaction in June 2013, when we commenced
business. We are the successor of Resonant LLC. We
completed our initial public offering, or IPO, on May 29, 2014. On
July 6, 2016 we acquired all of the issued and outstanding capital
stock of GVR Trade S.A, or GVR. GVR is a wholly owned subsidiary of
Resonant Inc.
Using our
innovative software platform we have developed an IP portfolio of
more than 200 patents filed or issued, with more than 40 filed or
issued targeting XBAR technology, including application to 5G. In
addition, with continued requirements for increasing numbers of
filter designs our innovative software platform addresses the need
for increased designer efficiency, reduced time to market and lower
unit costs in the designs of filters for radio frequency, or RF,
front-ends for the mobile device industry. The RF front-end,
or RFFE, is the circuitry in a mobile device responsible for analog
signal processing and is located between the device’s antenna and
its digital circuitry. The software platform we continue to
develop is based on fundamentally new technology that we call
Infinite Synthesized Networks®,
or ISN®,
to configure and connect resonators, the building blocks of RF
filters. Filters are a critical component of the RF front-end
used to select desired radio frequency signals and reject unwanted
signals.
We believe
licensing our designs is the most direct and effective means of
validating our ISN®
platform and
related IP libraries. Our target customers make part or all
of the RFFE. We intend to retain ownership of our designs,
and we expect to be compensated through license fees and royalties
based on sales of RFFE filters that incorporate our
designs.
Capital
Resources and Liquidity
We use the net
proceeds from the sales of our common stock for product development
to commercialize our technology, research and development, the
development of our patent strategy and expansion of our patent
portfolio, as well as for working capital and other general
corporate purposes.
We have earned
minimal revenues since inception, and our operations have been
funded with initial capital contributions and proceeds from the
sale of equity securities and debt. At September 30,
2019 and December 31,
2018, we
had incurred accumulated losses of $114.6 million
and
$92.6
million,
respectively. The losses are primarily the result of research and
development costs associated with commercializing our technology,
combined with start-up, financing and public company costs.
We expect to continue to incur substantial costs as we continue to
engage customers, increase the number of devices under design and
build the infrastructure to support our anticipated
growth.
Our condensed
consolidated financial statements account for the continuation of
our business as a going concern. We are subject to the risks
and uncertainties associated with a new business. Our
principal sources of liquidity as of September 30,
2019 consist of existing cash and
cash equivalents totaling $14.7
million,
which includes approximately $9.9 million
in proceeds from
our private placement of common stock that closed in September
2019. In the first nine months of 2019, we used
approximately $17.9 million
of cash and
investments for operating activities, the purchase of property and
equipment, and expenditures for patents. Due to these conditions,
along with anticipated increases in expenses, substantial doubt
exists as to our ability to continue as a going concern. After
evaluation of these conditions, we believe our current resources,
along with expected proceeds from forecasted billings, will provide
sufficient funding for planned operations into June of 2020. If
necessary, we will seek to raise additional capital from the sale
of equity securities or the incurrence of indebtedness to allow us
to continue operations. There can be no assurance that additional
financing will be available to us on acceptable terms, or at all.
Additionally, if we issue additional equity securities to raise
funds, whether to existing investors or others, the ownership
percentage of our existing stockholders would be reduced. New
investors may demand rights, preferences or privileges senior to
those of existing holders of common stock. Additionally, we
may be limited as to the amount of funds we can raise pursuant to
SEC rules and the continued listing requirements of NASDAQ. If we
cannot raise needed funds, we might be forced to make substantial
reductions in our operating expenses, which could adversely affect
our ability to implement our business plan and ultimately our
viability as a company. These condensed consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might result from
this uncertainty.
We have a Form
S-3 universal shelf registration statement on file with the SEC.
The universal shelf registration statement on Form S-3 permits us
to sell, in one or more public offerings, shares of our common
stock, shares of preferred stock or debt securities, or any
combination of such securities and warrants to purchase securities,
for proceeds in an aggregate amount of up to $50.0
million,
subject to potential limitations on the amount of securities we may
sell in any twelve-month period. The Form S-3 will expire in
November 2021. No securities have been issued
pursuant to the registration statement.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation and Use of Estimates—The accompanying unaudited
condensed consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the
United States (“GAAP”) for interim financial information. Certain
information and disclosures normally included in consolidated
financial statements prepared in accordance with GAAP have been
condensed or omitted. Accordingly, these condensed consolidated
financial statements should be read in conjunction with our audited
consolidated financial statements and the related notes included in
our Annual Report for the year ended December 31, 2018 filed with
the SEC on March 14, 2019. The year-end condensed balance sheet was
derived from our audited consolidated financial statements. Our
unaudited interim condensed consolidated financial statements
include, in the opinion of management, all adjustments, consisting
of normal and recurring items, necessary for the fair statement of
the condensed consolidated financial statements. The operating
results for the nine months ended September 30,
2019 are not necessarily indicative of the results expected
for the full year ending December 31, 2019. Prior period
figures have been reclassified, wherever necessary, to conform to
current presentation. Significant estimates made in preparing these
financial statements include (a) assumptions to calculate the
fair values of financial instruments, warrants and equity
instruments and other liabilities and the deferred tax asset
valuation allowance and (b) the useful lives for depreciable
and amortizable assets. Actual results could differ from those
estimates.
Consolidation
—The accompanying
financial statements include the accounts of the Company and its
wholly-owned subsidiary, GVR Trade, S.A. All significant
intercompany balances and transactions have been
eliminated.
Cash and
Cash Equivalents—We consider all liquid
instruments purchased with a maturity of three months or less to be
cash equivalents.
Concentration
of Credit Risk—We maintain bank accounts
at one U.S. financial institution.
The U.S. bank accounts are insured by the Federal Deposit Insurance
Corporation (FDIC) for up to $250,000 per account owner. GVR Trade
S.A., our wholly owned Swiss-based subsidiary maintains checking
accounts at one major national financial institution. Additionally,
we maintain a checking account with a very minimal balance at one
bank in South Korea, which is used to fund payroll and rent in
South Korea. Management believes we are not exposed to significant
credit risk due to the financial position of the depository
institutions in which our deposits are held.
Restricted
Cash—Restricted cash as of
September 30, 2019 and December 31, 2018
consists of
a $211,000 pledged mutual fund account
which is held as collateral against a letter of credit issued in
May 2018 in connection with the lease of our corporate
headquarters. See also Note 9 - Leases, for further
details.
Investments—Securities
held-to-maturity: Management determines the appropriate
classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date.
Investment/debt securities are classified as held-to-maturity when
we have the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost,
adjusted for amortization of premiums and accretion of discounts to
maturity computed under the effective interest method. Such
amortization is included in investment income. Interest on
securities classified as held-to-maturity is included in interest
and investment income.
When the
fair value of an investment instrument classified as
held-to-maturity is less than its amortized cost, management
assesses whether or not: (i) we have the intent to sell the
instrument or (ii) it is more likely than not that we will be
required to sell the instrument before its anticipated recovery. If
either of these conditions is met, we must recognize an
other-than-temporary impairment for the difference between the
instrument’s amortized cost basis and its fair value, and include
such amounts in other income (expense).
For investment
instruments that do not meet the above criteria and are not
expected to be recovered at the amortized cost basis, the
instrument is considered other-than-temporarily impaired. For these
instruments, we separate the total impairment into the credit loss
component and the amount of the loss related to other factors. In
order to determine the amount of the credit loss, we calculate the
recovery value by performing a discounted cash flow analysis based
on the current cash flows and future cash flows management expects
to recover. The discount rate is the effective interest rate
implicit in the underlying instrument. The amount of the total
other-than-temporary impairment related to credit loss is
recognized in earnings and is included in other income (expense).
The amount of the total other-than-temporary impairment related to
other factors is recognized in other comprehensive income. For
investment instruments that have other-than-temporary impairment
recognized
through earnings,
if through subsequent evaluation there is a significant increase in
the cash flow expected, the difference between the amortized cost
basis and the cash flows expected to be collected is accreted as
interest income.
Fair Value
of Financial Instruments—We measure certain financial
assets and liabilities at fair value based on the exit price
notion, or price that would be received for an asset or paid to
transfer a liability, in an orderly transaction between the market
participants at the measurement date. The carrying amounts of our
financial instruments, including cash equivalents, restricted cash,
investments held-to-maturity, accounts payable, and accrued
liabilities, approximate fair value due to their short
maturities.
Accounts
Receivable—Trade accounts receivable
are stated net of allowances for doubtful accounts. Management
estimates the allowance for doubtful accounts based on review and
analysis of specific customer balances that may not be collectible,
customer payment history and any other customer-specific
information that may impact ability to collect the receivable.
Accounts are considered for write-off when they become past due and
when it is determined that the probability of collection is remote.
There was no allowance for doubtful
accounts at September 30,
2019 and December 31,
2018.
Property
and Equipment—Property and equipment
consists of leasehold improvements associated with our corporate
offices, software purchased during the normal course of business,
equipment and office furniture and fixtures, all of which are
recorded at cost. Depreciation and amortization is recorded using
the straight-line method over the respective useful lives of the
assets ranging from three to five years. Leasehold improvements
are amortized over the shorter of lease term or useful life.
Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of these assets may
not be recoverable.
Intangible
Assets, net —Intangible assets are
recorded at cost and amortized over the useful life. In the case of
business combinations, intangible assets are recorded at fair
value. At September 30,
2019 and December 31,
2018,
intangible assets, net, includes patents and a domain name and
other intangible assets purchased as part of our acquisition of
GVR, including customer relationships, technology and a trademark.
Intangible assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of these assets may
not be recoverable. In certain cases, patents may expire or be
abandoned as we no longer plan to pursue them. In such cases we
write off the capitalized patent costs as patent abandonment costs
which are included in research and development
expenses.
Goodwill—At
September 30,
2019 and December 31,
2018,
goodwill represents the difference between the price paid to
acquire GVR and the fair value of the assets acquired, net of
assumed liabilities. We review goodwill for impairment annually and
whenever events or circumstances indicate that the carrying amount
of these assets may not be recoverable. As of January 1, 2019, we
have adopted ASU No. 2017-04, Intangibles-Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which simplifies the
accounting for goodwill impairments by eliminating step 2 from the
goodwill impairment test.
Revenue
Recognition—We recognize revenue in
accordance with the Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC, Topic 606,
Revenue
from Contracts with Customers.
Revenue is
recognized upon the transfer of control of promised goods or
services to the customers in an amount that reflects the
consideration we expect to receive in exchange for those products
or services. Revenue consists primarily of upfront non-refundable
fees received in connection with filter design projects with
customers and royalties. Our performance obligation is to design a
licensable filter in accordance with customer specifications. The
license of the completed design is considered part of this
performance obligation as the design and licensing of the filter
are highly interdependent. We recognize revenue over the course of
the design development phase as our customers are able to benefit
from our design services as they are provided, primarily by
marketing the in-process design to their customers. We recognize
revenue from our design services based on efforts expended to date.
At the end of each reporting period, we reassess our measure of
progress and adjust revenue when appropriate. We record the
expenses related to these projects in the periods incurred and they
are generally included in research and development
expense.
In most cases,
upfront non-refundable payments related to design development are
recognized over a period of 12 to 18 months. Contracts generally
include upfront non-refundable fees, intended to support our
initial engineering product development efforts, and may include
milestone payments based upon the successful completion of certain
deliverables. Milestone payments represent variable consideration,
and we use the "most likely amount" approach to determine the
amount we ultimately expect to receive. At contract inception, we
assess the likelihood of achieving milestones to estimate the total
consideration we believe we will receive for our
services.
Upon completion
of design services, our customers retain a license over the
completed design. The license will typically last for a minimum of
two years, and in many cases for the life of the design. Royalties
are sales-based, and we
recognize royalty
revenue upon shipment, by our customer, of products that include
our licensed design. Payment is generally due within 30
days.
We apply the
practical expedients available in ASC 606 to not disclose
information about 1) remaining performance obligations that have
original expected durations of one year or less and 2) variable
consideration that is a sales-based or usage-based
royalty.
Research
and Development—Costs and expenses that can
be clearly identified as research and development are charged to
expense as incurred in accordance with ASC Topic 730-10,
Research
and Development.
Operating
Leases—We
lease office space and research facilities under operating leases.
Certain lease agreements contain free or escalating rent payment
provisions. As of January 1, 2019, we have adopted ASU No.
2016-02, Leases
(Topic 842) as well as other clarifying
and practical updates issued under Leases
(Topic 842) applicable to
us.
We determine if
an arrangement is a lease at lease inception. Operating leases are
included in right-of-use (“ROU”) lease assets, other
current liabilities (current portion of lease obligations), and
long term lease obligations on our balance sheets. ROU lease assets
represent our right to use an underlying asset for the lease term
and lease obligations represent our obligation to make lease
payments arising from the lease. Operating ROU lease assets and
obligations are recognized at the commencement date based on the
present value of lease payments over the lease term. As most of our
leases do not provide an implicit rate, we use an incremental
borrowing rate based on the information available at the
commencement date in determining the present value of lease
payments. The ROU lease asset also includes any lease payments made
and excludes lease incentives. We evaluate renewal options at lease
inception and on an ongoing basis, and include renewal options
which we are reasonably certain to exercise in our expected lease
term when classifying leases and measuring lease liabilities. We
allocate the consideration between lease and nonlease components
and exclude nonlease components from our recognized lease assets
and liabilities. See also Recent
Accounting Pronouncements and Note 9 -
Leases.
Minimum lease
payments, including scheduled rent increases, are recognized as
lease expenses on a straight-line basis over the applicable lease
term. We recognize lease expenses within research and development
and sales, marketing and administration expenses on a straight-line
basis over the lease term.
We are not party
to any leases for which we are the lessor.
Stock-Based
Compensation—We account for stock options
in accordance with ASC Topic 718, Compensation-Stock
Compensation. We use the Black-Scholes
option valuation model for estimating fair value at the date of
grant.
We account for
restricted stock units issued at fair value, based on the market
price of our stock on the date of grant, net of estimated
forfeitures. Compensation expense is recognized for the portion of
the award that is ultimately expected to vest over the period
during which the recipient renders the required services to the
Company generally using the straight-line single option
method.
In the case of
award modifications, we account for the modification in accordance
with ASU No. 2017-09, Compensation-Stock
Compensation (Topic 718): Scope of Modification
Accounting, whereby we recognize the
effect of the modification in the period the award is
modified.
As of January 1,
2019, we adopted ASU No. 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Non-employee Share-Based
Payment Accounting, which aligns the accounting
of share-based payment awards issued to employees and
non-employees. The adoption did not materially impact our condensed
consolidated financial statements.
Stock-based
compensation expense is included in research and development
expenses and general and administrative expenses.
Earnings
Per Share, or EPS—EPS is computed in
accordance with ASC Topic 260, Earnings
per Share,
and is calculated using the weighted average number of common
shares outstanding during each period. Diluted EPS assumes the
conversion, exercise or issuance of all potential common stock
equivalents unless the effect is to reduce a loss or increase the
income per share. Potential common shares consist of the
incremental common shares issuable upon the exercise of stock
options (using the treasury stock method), the exercise of warrants
(using the if-converted method) and the vesting of restricted stock
unit awards.
Income
Taxes—We
account for income taxes in accordance with ASC Topic
740, Income
Taxes, or
ASC 740, which requires the recognition of deferred tax assets and
liabilities for the future consequences of events that have been
recognized in our condensed consolidated financial statements or
tax returns. The measurement of the deferred items is based on
enacted tax laws. In the event the future consequences of
differences between financial reporting bases and the tax bases of
our assets and
liabilities
result in a deferred tax asset, ASC 740 requires an evaluation of
the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that
some portion or the entire deferred tax asset will not be realized.
As part of the process of preparing our condensed consolidated
financial statements, we are required to estimate our income tax
expense in each of the jurisdictions in which we operate. We also
assess temporary differences resulting from differing treatment of
items for tax and accounting differences. We record a valuation
allowance to reduce the deferred tax assets to the amount of future
tax benefit that is more likely than not to be realized. For the
period when we were organized as a limited liability company, we
were treated as a partnership for federal and state income tax
purposes under the entity classification domestic default rules. As
of September 30,
2019 and December 31,
2018, no liability for unrecognized
tax benefits was required to be reported. We recognize interest and
penalties related to income tax matters in income taxes, and there
were none for the three and nine
months
ended September 30,
2019 and
2018.
We
have filed, or are in the process of filing, tax returns that are
subject to audit by the relevant tax authorities. Although the
ultimate outcome would be unknown, we believe that any adjustments
that may result from tax return audits are not likely to have a
material, adverse effect on our condensed consolidated results of
operations, financial position or cash flows.
Foreign
Currency Translation—The Swiss Franc has been
determined to be the functional currency for the net assets of our
Swiss-based subsidiary. We translate the assets and liabilities to
U.S. dollars at each reporting period using exchange rates in
effect at the balance sheet date and record the effects of the
foreign currency translation in accumulated other comprehensive
loss in shareholders' equity. We translate the income and expenses
to U.S. dollars at each reporting period using the average exchange
rate in effect for the period and record the effects of the foreign
currency translation as other comprehensive income (loss) in the
condensed consolidated statements of comprehensive loss. Gains and
losses resulting from foreign currency transactions are included in
net loss in the condensed consolidated statements of comprehensive
loss.
Recent
Accounting Pronouncements
Leases—In
February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842), which, among other things
required the recognition of lease assets and lease liabilities on
the balance sheet for substantially all leases, including operating
leases. Expanded disclosures with additional qualitative and
quantitative information are also required. ASU 2016-02 and its
amendments are effective for interim and annual reporting periods
beginning after December 15, 2018 and early adoption was permitted.
The standard allows for two methods of transition, one of which
allows for the guidance to be applied to all leases existing at the
adoption date with a cumulative effect adjustment to the opening
balance sheet of retained earnings. Under this transition approach,
comparative periods presented in the financial statements remain
under legacy lease guidance.
We adopted the
standard, as well as certain practical expedients included therein,
utilizing the optional transition method as of January 1, 2019.
Therefore, we have not restated comparative periods in our 2019
financial statements and prior periods are not included in our
leased properties footnote. The adoption did not have any
cumulative adjustment impact on retained earnings. We elected the
package of practical expedients permitted under the transition
guidance, which allowed us to carry forward our historical
assessments of: (1) whether contracts are or contain leases, (2)
lease classification and (3) initial direct costs. In addition, we
did not elect the hindsight practical expedient to determine the
reasonably certain lease term for existing leases. We also elected
a policy of not recording leases on our condensed consolidated
balance sheets when the leases have a term of 12 months or less and
we are not reasonably certain to elect an option to purchase the
leased asset.
The adoption of
the standard on January 1, 2019 caused us to recognize
approximately $3.0 million
in each,
right-of-use assets and lease liabilities, in our condensed
consolidated financial statements. The right-of-use asset balance
reflects the impact of other liability amounts, specifically
deferred rent, that has been effectively reclassified. The standard
did not materially impact consolidated net income or
liquidity.
NOTE
3—REVENUE RECOGNITION
We record
contract assets and contract liabilities in connection with revenue
recognized for filter design projects.
Contract
Assets -
Contract assets, other than accounts receivable, consist of
unbilled revenue and generally arise when revenue is recognized on
a contract whose transaction price includes an estimate of variable
consideration from milestone payments. We do not have material
amounts of contract assets as we have relatively few contracts,
only modest design service fees and a small number of contracts
containing milestone payments. Contract asset balances are included
in prepaid expenses and other current assets in our condensed
consolidated balance sheets.
Contract
Liabilities - Our contract liabilities
consist of customer deposits and deferred revenue. We classify
contract liabilities as current or noncurrent based on the timing
of when we expect to recognize revenue. Generally, our
contract
liabilities are
expected to be recognized in one year or less. Customer deposits
and deferred revenue are separately stated in our condensed
consolidated balance sheets.
Summary of
changes in contract assets and liabilities for the nine months
ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
2019
|
|
2018
|
Contract
assets
|
|
|
|
Contract assets,
beginning
|
$
|
36,000
|
|
|
$
|
67,000
|
|
Contract assets at beginning
of year transferred to accounts receivable
|
(36,000
|
)
|
|
(43,000
|
)
|
Reversal of contract assets
due to changes in transaction price
|
(8,000
|
)
|
|
(24,000
|
)
|
Contract assets recorded on
contracts during the period
|
8,000
|
|
|
3,000
|
|
Contract assets,
ending
|
$
|
—
|
|
|
$
|
3,000
|
|
|
|
|
|
Contract
liabilities
|
|
|
|
Contract liabilities,
beginning
|
$
|
271,000
|
|
|
$
|
146,000
|
|
Recognition of revenue
included in beginning of year contract liabilities
|
(199,000
|
)
|
|
(92,000
|
)
|
Contract liabilities, net of
revenue recognized on contracts during the period
|
2,037,000
|
|
|
132,000
|
|
Foreign currently
translation
|
$
|
—
|
|
|
$
|
1,000
|
|
Contract liabilities,
ending
|
$
|
2,109,000
|
|
|
$
|
187,000
|
|
The following
table presents our disaggregated revenue by region and
source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue by geographic
region:
|
|
|
|
|
|
|
|
United States
|
$
|
79,000
|
|
|
$
|
96,000
|
|
|
$
|
276,000
|
|
|
$
|
338,000
|
|
Switzerland
|
—
|
|
|
19,000
|
|
|
—
|
|
|
58,000
|
|
Total revenue
|
$
|
79,000
|
|
|
$
|
115,000
|
|
|
$
|
276,000
|
|
|
$
|
396,000
|
|
|
|
|
|
|
|
|
|
Revenue by
source:
|
|
|
|
|
|
|
|
Design services
|
$
|
70,000
|
|
|
$
|
85,000
|
|
|
$
|
252,000
|
|
|
$
|
276,000
|
|
Royalties
|
9,000
|
|
|
30,000
|
|
|
24,000
|
|
|
120,000
|
|
Total revenue
|
$
|
79,000
|
|
|
$
|
115,000
|
|
|
$
|
276,000
|
|
|
$
|
396,000
|
|
Effective
September 30, 2019, we entered into a collaboration and license
agreement, dated September 30, 2019, with Murata Manufacturing Co.,
Ltd. Pursuant to the collaboration agreement, we have agreed with
Murata to collaborate on the development of proprietary circuit
designs using our XBAR® technology, and we licensed to Murata
rights for products in four specific radio frequencies, or bands.
Murata has agreed to pay us up to an aggregate of
$9.0
million as
pre-paid royalties and other fees for the licensed designs and
certain other intellectual property developed in the collaboration,
payable in installments over a multi-year development period, with
each installment conditional upon our achievement of certain
milestones and deliverables acceptable to Murata in its discretion.
Murata may terminate the collaboration agreement at any time upon
thirty (30) days prior written notice to us.
Murata’s rights
to our XBAR® technology are exclusive for a period of
30
months,
through March 2022, during which period we may not grant to any
third party the right to develop, make, have made, use, sell, offer
for sale or import any filter or resonator produced through the use
of the XBAR® technology for use in mobile communication
devices.
Under the
collaboration agreement, the first of payment of
$2.0
million was due to us, and was
recorded in accounts receivable with the offset to deferred revenue
at September 30, 2019. Payment was received on October 11,
2019.
NOTE
4—INVESTMENTS HELD-TO-MATURITY
We classify
investments as held-to-maturity when we have the positive intent
and ability to hold the securities to maturity.
During the nine
months ended September 30, 2019, we invested in commercial papers
that were classified as investments held-to-maturity. As of
September 30, 2019, all investments have matured. We did not
recognize an other-than-temporary impairment or comprehensive gain
or loss for the three and nine months ended September 30,
2019.
We recorded
interest and investment income of $42,000 and $177,000 for the three months ended
September 30, 2019 and 2018, respectively, and $220,000 and $323,000 for the nine months ended
September 30, 2019 and 2018, respectively, associated with our cash
and investment accounts.
NOTE
5—WARRANTS
From time to
time, we have issued warrants to purchase shares of common stock.
These warrants have been issued in connection with the financing
transactions and consulting services. Our warrants are subject to
standard anti-dilution provisions applicable to shares of our
common stock.
In January 2018,
we entered into an agreement with our founders to exchange warrants
to purchase an aggregate of 249,999 shares of our common stock,
with an exercise price of $0.20 per share, for an amount of
shares that would equal the number of shares they would have
received if exercised under a cashless exercise. The effect of
exchanging the warrants for shares of our common stock was
considered a modification of the award which required us to record
expense for the excess of the fair value of the common stock issued
over the fair value of the exchanged warrants. On the date of the
exchange the fair value of the warrants was determined to be
$1.6
million and the fair value of the
shares of common stock issued were $1.6
million.
There was a difference in fair value of $2,000 which was recorded to sales,
marketing and administration expenses during the nine months ended
September 30, 2018. No expense was recorded in the
nine months ended September 30, 2019.
A roll-forward of
warrant share activity from January 1, 2018 to
September 30,
2018 is
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Issued and
Outstanding
Warrants as of
January 1, 2018
|
|
Warrants
Exercised/
Expired
|
|
Issued and
Outstanding Warrants as of September 30, 2018
|
Bridge Warrants
|
249,999
|
|
|
(249,999
|
)
|
(1)
|
—
|
|
Consulting
Warrants
|
12,223
|
|
|
(5,556
|
)
|
(2)
|
6,667
|
|
Financing
Warrants
|
62,530
|
|
|
—
|
|
|
62,530
|
|
Underwriting
Warrants
|
310,500
|
|
|
—
|
|
|
310,500
|
|
IR Consulting
Warrants
|
6,000
|
|
|
(6,000
|
)
|
(3)
|
—
|
|
Private Placement Warrants -
2016
|
891,063
|
|
|
(73,000
|
)
|
(4)
|
818,063
|
|
Underwriting Warrants -
Public Offering 2016
|
122,175
|
|
|
—
|
|
|
122,175
|
|
Private Placement Warrants -
September 2017
|
1,976,919
|
|
|
(10,600
|
)
|
(5)
|
1,966,319
|
|
Placement Agent
Warrants
|
98,846
|
|
|
—
|
|
|
98,846
|
|
|
3,730,255
|
|
|
(345,155
|
)
|
|
3,385,100
|
|
(1) During the nine months
ended September 30, 2018, there were 249,999 warrants that were exchanged
for 242,913 shares of common stock in an
exchange transaction where the warrant holders exchanged the
warrants for the same number of shares they would have been
entitled to in a cashless exercise.
(2) During the nine months
ended September 30, 2018, there were 5,556 warrants that were exercised
through a cashless exercise which netted 5,542 shares being
issued.
(3) During the nine months
ended September 30, 2018, 6,000 warrants expired.
(4) During the nine months
ended September 30, 2018, there were 73,000 warrants exercised for
cash.
(5) During the nine months
ended September 30, 2018, there were 10,600 warrants exercised for
cash.
A roll-forward of
warrant share activity from January 1, 2019 to
September 30,
2019 is
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Issued and
Outstanding
Warrants as of
January 1, 2019
|
|
Warrants
Exercised/
Expired
|
|
Issued and
Outstanding Warrants as of September 30, 2019
|
Consulting
Warrants
|
$0.01
|
|
6/17/2020
|
|
6,667
|
|
|
—
|
|
|
6,667
|
|
Financing
Warrants
|
$3.35
|
|
6/17/2020
|
|
62,530
|
|
|
—
|
|
|
62,530
|
|
Underwriting
Warrants
|
$7.50
|
|
5/28/2019
|
|
310,500
|
|
|
(310,500
|
)
|
(1)
|
—
|
|
Private Placement Warrants -
2016
|
$2.86
|
|
4/25/2019
|
|
818,063
|
|
|
(818,063
|
)
|
(2)
|
—
|
|
Underwriting Warrants -
Public Offering 2016
|
$4.25
|
|
9/9/2019
|
|
122,175
|
|
|
(122,175
|
)
|
(3)
|
—
|
|
Private Placement Warrants -
September 2017
|
$4.85
|
|
9/28/2020
|
|
1,966,319
|
|
|
—
|
|
|
1,966,319
|
|
Placement Agent
Warrants
|
$4.85
|
|
9/28/2020
|
|
98,846
|
|
|
—
|
|
|
98,846
|
|
|
|
|
|
|
3,385,100
|
|
|
(1,250,738
|
)
|
|
2,134,362
|
|
|
|
(1)
|
During the nine months
ended September 30,
2019, there
were 310,500 warrants that
expired.
|
|
|
(2)
|
During the nine months
ended September 30,
2019, there
were 485,000 warrants exercised for
cash, 44,928 warrants that were exercised
through a cashless exercise which netted 1,809 shares being issued and
288,135
warrants that
expired.
|
(3) During the
nine months ended September 30, 2019, there were
122,175
warrants that
expired.
NOTE
6—STOCKHOLDERS’ EQUITY AND LOSS PER SHARE
Common
Stock
Pursuant
to our amended and restated certificate of incorporation, we are
authorized to issue 100,000,000
shares of common
stock. Holders of our common stock are entitled to dividends as and
when declared by the Board of Directors, subject to rights and
holders of all classes of stock outstanding having priority rights
to dividends. There have been no dividends declared to date. Each
share of common stock is entitled to one vote.
On
March 27,
2018, we
completed the sale of 5,714,286 shares of common stock at a
price of $3.50 per share in an underwritten
public offering. Gross proceeds were $20.0 million
with net proceeds
of $18.4
million after deducting underwriter
fees and offering expenses. The shares were issued pursuant to a
shelf registration statement that we filed with the SEC, which
became effective in May 2016. On April 6,
2018,
following exercise by the underwriter of its overallotment option,
we sold an additional 857,142 shares at a price of
$3.50, resulting in gross proceeds
of $3.0
million and net proceeds of
$2.8
million after deducting underwriter
fees and offering expenses.
We entered into a
securities purchase agreement, dated July 31,
2019, for
the sale of an aggregate of 3,960,560 shares of common stock at a
price of $2.53 per share. Gross proceeds
were approximately $10.0 million
with net proceeds
of $9.9
million after deducting fees and
operating expenses. The initial closing, for 1,193,762 shares, took place on
August 9,
2019 and
gross proceeds were approximately $3.0
million.
The second closing with a single investor, which was subject to
additional conditions, including the execution of a definitive
multi-year commercial agreement with an affiliate of the investor,
for 2,766,798 shares and gross proceeds
of $7.0
million took place on
September 30, 2019.
We have a Form
S-3 universal shelf registration statement on file with the SEC.
The universal shelf registration statement on Form S-3 permits us
to sell, in one or more public offerings, shares of our common
stock, shares of preferred stock or debt securities, or any
combination of such securities and warrants to purchase securities,
for proceeds in an aggregate amount of up to $50.0 million, subject
to potential limitations on the amount of securities we may sell in
any twelve-month period. The Form S-3 will expire in November
2021. No securities have been issued pursuant to the
registration statement.
Preferred
Stock
Pursuant to our
amended and restated certificate of incorporation, we are
authorized to issue 3,000,000 shares of preferred stock.
The Board of Directors has the authority, without action by our
stockholders, to designate and issue shares of preferred stock in
one or more series and to fix the rights, preferences, privileges
and restrictions thereof. To-date, no preferred shares have been
issued.
Stock
Repurchase Program
On November 26,
2018, we announced that our board of directors had authorized a
program to repurchase up to $4.0
million of our common stock
over a 12-month period, either in the open market or through
privately negotiated transactions. As of December 31, 2018, we had
repurchased approximately $152,000. No purchases were made in the
three and nine months ended September 30, 2019.
Loss Per
Share
The following
table presents the number of shares excluded from the calculation
of diluted net loss per share attributable to common stockholders
for the periods below:
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
2019
|
|
2018
|
Common stock
warrants
|
2,134,362
|
|
|
3,385,100
|
|
Common stock
options
|
1,338,603
|
|
|
1,234,967
|
|
Non-vested restricted stock
unit awards
|
2,672,087
|
|
|
2,071,299
|
|
Total shares excluded from
net loss per share attributable to common stockholders
|
6,145,052
|
|
|
6,691,366
|
|
NOTE 7—
STOCK-BASED COMPENSATION
2014 Omnibus Incentive Plan
In
January 2014, our board of directors approved the 2014 Omnibus
Incentive Plan and amended and restated the plan in
March 2014. Our stockholders approved the Amended and Restated
2014 Omnibus Incentive Plan, or the 2014 Plan, in March 2014.
Our 2014 Plan initially permitted for the issuance of equity-based
instruments covering up to a total of 1,400,000 shares of common stock. Our
board of directors and stockholders approved an increase of
1,300,000
shares in June
2016, an additional increase of 3,250,000 shares in June 2017, and an
additional increase of 4,000,000 shares in June 2019, bringing
the total shares allowed under the plan to 9,950,000.
Option Valuation
We account for
stock options in accordance with ASC Topic 718, Compensation-Stock
Compensation. As of January 1, 2019, we
adopted ASU No. 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Non-employee Share-Based
Payment Accounting, which aligns the accounting
of share-based payment awards issued to employees and
non-employees.
We use the
Black-Scholes option valuation model for estimating fair value at
the date of grant. Option forfeitures are estimated at the time of
valuation and reduce expense ratably over the vesting period. This
estimate will be adjusted periodically based on the
extent to which actual option forfeitures differ, or are expected
to differ, from the previous estimate, when it is material. The
expected term used for options is the estimated period of time that
options granted are expected to be outstanding. We have estimated
the expected life of stock options using the “simplified” method,
whereby, the expected life equals the arithmetic average of the
vesting term and the original contractual term of the option due to
our lack of sufficient historical data. Since our stock has not
been publicly traded for a sufficiently long period of time, we are
utilizing an expected volatility figure based on a review of the
historical volatilities, over a period of time, equivalent to the
expected life of the instrument being valued, of similarly
positioned public companies within our industry. The risk-free
interest rate was determined from the implied yields from U.S.
Treasury zero-coupon bonds with a remaining term consistent with
the expected term of the instrument being valued.
Stock Options
During the
three and
nine months ended
September 30,
2018, we
granted incentive stock options for the purchase of
110,000
and
227,500
shares,
respectively, of our common stock. The stock options have an
exercise price range of $4.12 per share to
$5.96
per share with a
term of 10
years. The
stock options vest quarterly over sixteen quarters. For the three and
nine months ended September 30, 2018, the options granted had an
aggregate grant date fair value of $345,000 and $738,000, respectively, utilizing the
Black-Scholes option valuation model.
During the
three and
nine months ended
September 30,
2019, we
granted incentive stock options for the purchase of
25,000
and
127,000
shares,
respectively, of our common stock. The stock options have an
exercise price range of $1.52 per share to
$3.26
per share with a
term of 10
years. The
stock options vest quarterly over sixteen quarters. For the three and
nine
months ended
September 30, 2019, the options granted had an aggregate grant date
fair value of $53,000 and $233,000, respectively, utilizing the
Black-Scholes option valuation model.
We estimated the
fair value of stock options awarded during the nine months ended September 30,
2019 and 2018 using the Black-Scholes option valuation model. The
fair values of stock options granted for the periods were estimated
using the following assumptions:
|
|
|
|
|
|
|
|
Stock Option
Grants Awarded During the Nine Months Ended September 30,
2019
|
|
Stock Option
Grants Awarded During the Nine Months Ended September 30,
2018
|
Stock Price
|
|
$1.52 to $3.26
|
|
$4.12 to $5.96
|
Dividend Yield
|
|
0.00%
|
|
0.00%
|
Expected
Volatility
|
|
70%
|
|
70%
|
Risk-free interest
rate
|
|
1.47% - 2.62%
|
|
2.50% - 2.98%
|
Expected Life
|
|
7 years
|
|
7 years
|
Stock-based
compensation expense related to stock options was
$110,000
and
$125,000
for the three
months ended September 30, 2019 and 2018, respectively, and
$320,000
and
$347,000
for the nine
months ended September 30, 2019 and 2018, respectively. For all
stock options, we estimate forfeitures at the time of grant, and
revise those estimates in subsequent periods if actual forfeitures
differ from our estimates. We use historical data to estimate
pre-vesting option forfeitures and record stock-based compensation
expense only for those awards that are expected to vest. To the
extent that actual forfeitures differ from our estimates, the
difference is recorded as a cumulative adjustment in the period the
estimates were revised. During the three and nine months ended
September 30, 2019 and September 30, 2018, we applied a forfeiture
rate of 10% and 6%, respectively, which is
reflected in our stock-based compensation expense related to stock
options.
Stock Option Award Activity
The following is
a summary of our stock option activity during the
nine
months
ended September 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Weighted
Average
Remaining
Life In
Years
|
Outstanding, January 1,
2019
|
1,255,280
|
|
|
$
|
4.82
|
|
|
$
|
3.03
|
|
|
7.75
|
Granted
|
127,000
|
|
|
2.72
|
|
|
1.83
|
|
|
9.59
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Canceled /
Forfeited
|
(43,677
|
)
|
|
4.56
|
|
|
2.90
|
|
|
—
|
Outstanding, September 30,
2019
|
1,338,603
|
|
|
$
|
4.63
|
|
|
$
|
2.92
|
|
|
7.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Weighted
Average
Remaining
Life In
Years
|
Exercisable, January 1,
2019
|
843,019
|
|
|
$
|
5.02
|
|
|
$
|
3.13
|
|
|
7.23
|
Vested
|
129,372
|
|
|
4.07
|
|
|
2.57
|
|
|
7.22
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Canceled /
Forfeited
|
(15,242
|
)
|
|
4.57
|
|
|
2.76
|
|
|
—
|
Exercisable, September 30,
2019
|
957,149
|
|
|
$
|
4.90
|
|
|
$
|
3.06
|
|
|
6.49
|
The following
table presents information related to stock options outstanding and
exercisable at September 30,
2019:
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise
Price
|
|
Outstanding
Number of
Options
|
|
Weighted
Average
Remaining
Life In
Years
|
|
Exercisable
Number
of
Options
|
$1.52 – $3.15
|
|
283,183
|
|
|
6.58
|
|
138,521
|
|
$3.25 – $4.92
|
|
613,620
|
|
|
7.42
|
|
441,094
|
|
$5.01 – $6.00
|
|
281,500
|
|
|
5.34
|
|
234,095
|
|
$6.18 – $7.20
|
|
70,000
|
|
|
5.41
|
|
58,757
|
|
$7.54 – $7.80
|
|
67,800
|
|
|
5.43
|
|
62,182
|
|
$8.06 – $12.98
|
|
22,500
|
|
|
5.30
|
|
22,500
|
|
|
|
1,338,603
|
|
|
6.49
|
|
957,149
|
|
As
of September 30,
2019,
there was $884,000 of unrecognized compensation
expense related to unvested employee stock options, which is
expected to be recognized over a weighted-average period of
approximately 2.5 years. The aggregate intrinsic
values of outstanding stock options and vested stock options as
of September 30,
2019 were $203,000 and $136,000, respectively, which
represent options whose exercise price was less than the closing
fair market value of our common stock on September 30,
2019 of $2.97 per share.
Restricted Stock Units Activity
We account for
restricted stock units issued at fair value, based on the market
price of our stock on the date of grant, net of estimated
forfeitures. RSUs issued in connection with our employee incentive
programs typically vest within 10 days of grant. All other RSUs,
primarily issued as long term incentives, generally vest annually
over three to four years.
During the three
months ended September 30, 2019 and 2018, we recorded
$1.3
million and $1.2
million,
respectively, of stock-based compensation related to the restricted
stock unit shares that had been issued to-date. During the nine
months ended September 30, 2019 and 2018, we recorded
$3.9
million and $3.6
million,
respectively, of stock-based compensation related to the restricted
stock unit shares that had been issued to-date.
A summary
of restricted stock unit activity for the nine months ended
September 30,
2019 is as
follows:
|
|
|
|
|
|
|
|
|
Number of
Restricted Share
Units
|
|
Weighted-
Average
Grant-Date Fair
Value Per
Share
|
Outstanding at
January 1, 2019
|
1,921,594
|
|
|
$
|
4.78
|
|
Granted
|
1,553,475
|
|
|
2.95
|
|
Vested
|
(650,520
|
)
|
|
4.15
|
|
Forfeited
|
(152,462
|
)
|
|
4.25
|
|
Outstanding at September 30,
2019
|
2,672,087
|
|
|
$
|
3.69
|
|
As of
September 30,
2019,
there was $6.2 million
of unrecognized
compensation expense related to unvested restricted stock unit
agreements which is expected to be recognized over a
weighted-average period of approximately 2.1 years. For restricted stock unit
awards subject to graded vesting, we recognize compensation cost on
a straight-line basis over the service period for the entire
award.
Market-based Awards
In
August 2016, we granted 250,000 market-based restricted stock
units to an executive. The restricted stock units are subject to
market-based vesting requirements, measured quarterly, based on the
average of (a) the average high daily trading price of our common
stock for each trading day during the last month of the applicable
calendar quarter and (b) the average low daily trading price of our
common stock for each trading day during the last month of the
applicable calendar quarter, each as reported by The Nasdaq Stock
Market, LLC. The restricted stock units are eligible to be earned
on a quarterly basis based on a linear interpolation of the
applicable share price, or in the case of a liquidation event, on
the day of (or in connection with) such liquidation event based on
the applicable transaction price. The share price on the date of
issuance was $5.06 per share.
In June 2019, the
market-based award was modified to increase the number of
restricted stock units to 500,000 and to decrease the
applicable share price. Additionally, the performance period was
extended to September 30, 2022. The share price on the date of
modification was $2.73 per share.
Once earned, the
restricted stock units vest 50% on the date such restricted
stock units become earned and 50% on September 30,
2022. We
recognize compensation expense for restricted stock units with
market conditions using a graded vesting model, based on the
probability of the performance condition being met, net of
estimated pre-vesting forfeitures. For the three months ended
September 30, 2019 and 2018, we recognized $3,000 and $6,000, respectively, and for the
nine months ended September 30, 2019 and 2018, we recognized
$10,000
and
$18,000, respectively, of stock
compensation expense in connection with this award, which is
included in sales, marketing and administration expenses. The
unamortized expense related to this award is $143,000 and is expected to be
recognized over 3.0 years.
Incentive Bonus Awards
We provide
eligible employees, including executives, the opportunity to earn
bonus awards upon achievement of predetermined performance goals
and objectives. The purpose is to reward attainment of company
goals and/or individual performance objectives, with award
opportunities expressed as a percentage of base salary. Bonuses can
be measured and paid quarterly and/or annually, and are paid in
cash, equity or a combination of cash and equity, in the discretion
of our compensation committee. If paid in the form of equity, the
expense is included in the above disclosures for stock options or
restricted stock units as applicable.
Total stock-based
compensation recorded in the condensed consolidated statements of
comprehensive loss is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30, 2019
|
|
Three Months
Ended September 30, 2018
|
|
Nine Months
Ended September 30, 2019
|
|
Nine Months
Ended September 30, 2018
|
Research and
development
|
|
$
|
703,000
|
|
|
$
|
686,000
|
|
|
$
|
2,026,000
|
|
|
$
|
2,033,000
|
|
Sales, marketing and
administration
|
|
686,000
|
|
|
682,000
|
|
|
2,174,000
|
|
|
1,925,000
|
|
Total
stock-based compensation
|
|
$
|
1,389,000
|
|
|
$
|
1,368,000
|
|
|
$
|
4,200,000
|
|
|
$
|
3,958,000
|
|
NOTE
8—INCOME TAXES
Income tax for
the three months ended September 30, 2019 and 2018 was an expense
of zero and a benefit of
$11,000, respectively. Income tax
for the nine months ended September 30, 2019 and 2018 was an
expense of $1,000 and benefit of
$19,000, respectively. The effective
tax rate for the three and nine months ended September 30, 2019 and
2018 differed from the statutory rate primarily due to the
valuation allowance recorded against the Company’s deferred tax
assets.
NOTE 9—
LEASES
We lease
facilities under two non-cancelable operating
leases. The leases expire between January 2022 and August 2024 and
include renewal provisions for two to five years, provisions which
require us to pay taxes, insurance, maintenance costs or provisions
for minimum rent increases. We also lease facilities and equipment
under short-term agreements for a period of 12 months or less. All of the
information presented below, with the exception of total lease
costs, relates to our two non-cancelable operating
leases.
One lease
requires us to maintain a cash security deposit of
$50,000
and also a
$200,000
letter of credit
in favor of the lessor. The letter of credit steps down
$50,000
at each
anniversary date if there have been no monetary defaults. The
letter of credit is secured by a pledge in favor of the issuing
bank of a $211,000 mutual fund account which is
classified as restricted cash in our balance sheet.
Lease renewal
options are at our discretion. No renewal options have been
recognized in our right-of-use assets and lease liabilities as
of September 30,
2019. Our
lease agreements do not require material variable minimum lease
payments, residual value guarantees or restrictive
covenants.
The table below
presents the operating lease assets and liabilities recognized on
the condensed consolidated balance sheet as of September 30,
2019:
|
|
|
|
|
|
|
|
Balance
Sheet Line Item
|
|
September
30, 2019
|
|
Operating lease
assets
|
Operating lease right-of-use
assets
|
|
$
|
2,642,000
|
|
Current operating lease
liabilities
|
Operating lease liabilities,
current
|
|
$
|
600,000
|
|
Noncurrent operating lease
liabilities
|
Operating lease
liabilities
|
|
$
|
2,217,000
|
|
Total operating lease
liabilities
|
N/A
|
|
$
|
2,817,000
|
|
The depreciable
lives of operating lease assets and leasehold improvements are
limited by the expected lease term.
Our leases
generally do not provide an implicit rate, and therefore we use our
incremental borrowing rate as the discount rate when measuring
operating lease liabilities. The incremental borrowing rate
represents an estimate of the interest rate we would incur at lease
commencement to borrow an amount equal to the lease payments on a
collateralized basis over the term of the lease. We used a weighted
average incremental borrowing rate of 4.75% as of January 1, 2019 for
operating leases that commenced prior to that date. The discount
rates applied to each lease reflect our estimated incremental
borrowing rate. This includes an assessment of our credit rating to
determine the rate that we would have to pay to borrow, on a
collateralized basis for a similar term, an amount equal to our
lease payments in a similar economic environment.
The Company's
weighted average remaining lease term and weighted average discount
rate for operating leases as of September 30,
2019 is
shown below:
|
|
|
|
|
|
September
30, 2019
|
Weighted average remaining
lease term (years)
|
|
4.47
|
Weighted average discount
rate (%)
|
|
4.75
|
The table below
reconciles the undiscounted cash flows for each of the first five
years and total of the remaining years to the total operating lease
liabilities recognized on the condensed consolidated balance sheets
as of September 30,
2019:
|
|
|
|
|
|
|
|
September
30, 2019
|
|
October 1, 2019 through
December 31, 2019
|
|
$
|
179,000
|
|
2020
|
|
726,000
|
|
2021
|
|
748,000
|
|
2022
|
|
557,000
|
|
2023
|
|
555,000
|
|
2024
|
|
376,000
|
|
Total minimum lease
payments
|
|
3,141,000
|
|
Less: imputed
interest
|
|
(324,000
|
)
|
Total operating lease
liabilities
|
|
$
|
2,817,000
|
|
Operating lease
costs were $268,000 for the three months
ended September 30,
2019, of
which $204,000 and $64,000 are included in research and
development expenses and sales, marketing and administration
expenses, respectively. Operating lease costs were
$795,000
for the nine
months ended September 30, 2019, of which $597,000 and $198,000 are included in research and
development expenses and sales, marketing and administration
expenses, respectively. Prior to the adoption of ASC 842, we
recorded rent expense for the three and nine months ended September
30, 2018 of $200,000 and $484,000, respectively, which was
included in sales, marketing and administration
expenses.
Cash paid for
amounts included in the measurement of operating lease liabilities
were $441,000 for the nine months
ended September 30,
2019, and
this amount is included in operating activities in the condensed
consolidated statements of cash flows.
The future
minimum obligations under operating leases in effect as of December
31, 2018 having a noncancelable term in excess of one year as
determined prior to the adoption of ASU 842 are as
follows:
|
|
|
|
|
|
December 31,
2018
|
2019
|
$
|
658,000
|
|
2020
|
726,000
|
|
2021
|
748,000
|
|
2022
|
557,000
|
|
2023
|
555,000
|
|
2024
|
376,000
|
|
Future minimum
obligations
|
$
|
3,620,000
|
|
NOTE
10—RELATED PARTY TRANSACTIONS
In
August
2019, we
entered into a consulting agreement with a member of our board of
directors. Under the agreement, the board member would provide
technical advisory services for cash payments totaling
$50,000
paid in
twelve
equal monthly
installments as well as an award of restricted stock units equal in
value to $100,000 as of the grant date. The
restricted stock units vest in full on January 1,
2020. No
later than January 15,
2020, the
board member shall receive an additional grant of restricted stock
units equal to $100,000 of value as of the grant
date, provided that, as of the grant date of the second grant, the
board member is still providing the technical advisory services to
the company. The second grant will vest in full on
December 31,
2020. In
the event the board member is still performing services to the
company after 2020, the Company will issue new
grants equal to no less than $100,000 worth of restricted stock
units in January of each additional year with such grants vesting
at the end of each year so long as the services are still being
provided. The agreement is cancelable at any time by either the
Company or the board member. During the three and nine months ended
September 30, 2019, we recorded expenses of $8,000 in connection with cash
compensation portion of the consulting agreement, which are
included in general and administrative expenses. Additionally,
during the three and nine months ended September 30, 2019, we
recorded $42,000 related to the restricted
stock unit award, which is included in research and development
expenses. As of September 30, 2019, there were no amounts due to the board
member under this consulting agreement.
In July 2019 we
entered into a securities purchase agreement with Murata
Electronics North America, Inc., an affiliate of Murata
Manufacturing Co., Ltd., (“Murata”) for the sale by the Company
of 2,766,798 shares of common stock of the
Company, par value $0.001 per share at a price
of $2.53 per Share, for gross proceeds
of approximately $7.0
million.
Upon closing in September 2019, Murata owned approximately
8.5%
of our
outstanding common stock. Concurrent with the closing, we entered
into a collaboration and license agreement with Murata
Manufacturing Co., Ltd. Pursuant to the collaboration agreement, we
have agreed with Murata to collaborate on the development of
proprietary circuit designs using our XBAR® technology, and we
licensed to Murata rights for products in four specific radio
frequencies, or bands. Murata has agreed to pay us up to an
aggregate of $9.0 million
as pre-paid
royalties and other fees for the licensed designs and certain other
intellectual property developed in the collaboration, payable in
installments over a multi-year development period, with each
installment conditional upon our achievement of certain milestones
and deliverables acceptable to Murata in its discretion. Murata may
terminate the collaboration agreement at any time upon thirty (30)
days prior written notice to us.
Murata’s rights
to our XBAR® technology are exclusive for a period of
30
months,
ending in March 2022, during which period we may not grant to any
third party the right to develop, make, have made, use, sell, offer
for sale or import any filter or resonator produced through the use
of the XBAR® technology for use in mobile communication devices.
Under the collaboration agreement, the first of payment of
$2.0
million was due to us, and was
recorded in accounts receivable with the offset to deferred revenue
at September 30, 2019. Payment was received on October 11,
2019.
NOTE 11—
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings—We are not party to any legal
proceedings. We may, from time to time, be party to litigation and
subject to claims incident to the ordinary course of business. As
our growth continues, we may become party to an increasing number
of litigation matters and claims. The outcome of litigation and
claims cannot be predicted with certainty, and the resolution of
any future matters could materially affect our future financial
position, results of operations or cash flows.
Legal fees and
other costs associated with legal proceedings are expensed as
incurred. We assess, in conjunction with our legal counsel, the
need to record a liability for litigation and contingencies.
Litigation accruals are recorded when and if it is determined that
a loss related matter is both probable and reasonably estimable.
Material loss contingencies that are reasonably possible of
occurrence, if any, are subject to disclosure. We evaluate
developments in legal proceedings and other matters on a quarterly
basis. As of September 30, 2019 and 2018, there was
no
litigation or
contingency with at least a reasonable possibility of a material
loss. No losses have been recorded
during the three and nine
months ended
September 30, 2019 and 2018, respectively, with respect to
litigation or loss contingencies.
Intellectual
Property Indemnities—We indemnify certain
customers and manufacturers against liability arising from
third-party claims of intellectual property rights infringement
related to our products. These indemnities may appear in license
agreements, development agreements and manufacturing agreements,
may not be limited in amount or duration and generally survive the
expiration date of the contract. Given that the amount of any
potential liabilities related to such indemnities cannot be
determined until an infringement claim has been made, we are unable
to determine the maximum amount of losses that we could incur
related to such indemnifications.
Director
and Officer Indemnities and Contractual
Guarantees—We have entered into
indemnification agreements with our directors and executive
officers, which require us to indemnify such individuals to the
fullest extent permitted by Delaware law. Our indemnification
obligations under such agreements are not limited in amount or
duration. Certain costs incurred in connection with such
indemnifications may be recovered under certain circumstances under
various insurance policies. Given that the amount of any potential
liabilities related to such indemnities cannot be determined until
a lawsuit has been filed, we are unable to determine the maximum
amount of losses that we could incur relating to such
indemnities.
We have also
entered into severance and change in control agreements with
certain of our executives. These agreements provide for the payment
of specific compensation benefits to such executives upon the
termination of their employment with us.
Guarantees
and Indemnities—In the normal course of
business, we are occasionally required to undertake indemnification
for which we may be required to make future payments under specific
circumstances. We review our exposure under such obligations no
less than annually, or more frequently as required. The amount of
any potential liabilities related to such obligations cannot be
accurately determined until a formal claim is filed. Historically,
any such amounts that become payable have not had a material
negative effect on our business, financial condition or results of
operations. We maintain general and product liability insurance
which may provide a source of recovery to us in the event of an
indemnification claim.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The words “believe,” “may,” “will,” “potentially,”
“estimate,” “continue,” “anticipate,” “intend,” “could,” “would,”
“project,” “plan,” “expect” and similar expressions that convey
uncertainty of future events or outcomes are intended to identify
forward-looking statements. These
forward-looking statements speak only as of the date of this
Form 10-Q and are subject to uncertainties, assumptions and
business and economic risks. As such, our actual results could
differ materially from those set forth in the forward-looking
statements as a result of the factors referenced in the subsection
“Risk Factors” set forth in Part II, Item 1A of this
Report and Part I, Item 1A of our Annual Report, and similar
discussions in our other reports filed with the Securities and
Exchange Commission. You should not rely upon forward-looking
statements as predictions of future events. Although we believe
that the expectations reflected in our forward-looking statements
are reasonable, we cannot guarantee that the future results, levels
of activity, performance or events and circumstances described in
the forward-looking statements will be achieved or occur. We
undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this Form 10-Q to
conform these statements to actual results or to changes in our
expectations, except as required by law.
The
following discussion should be read in conjunction with our
unaudited condensed consolidated financial statements and notes
thereto appearing elsewhere in this Quarterly Report on
Form 10-Q with the understanding that our actual future
results, levels of activity, performance and events and
circumstances may be materially different from what we
expect.
Overview
We
are a late-stage development company that designs filters for the
mobile device industry. We have not yet realized material revenues
and our focus is on continuing to engage new customers, expand the
number of contracts for filter designs and build the necessary
infrastructure to support anticipated growth. Consequently, our
expenses will continue to modestly increase as we position for a
ramp in royalty revenues.
We plan to expand
our IP libraries, further the development of our
ISN®
platform and
continue to develop IP associated with high frequency/high-wide
bandwidth filters. While we remain a filter design licensing
company, we are also investigating the potential of licensing part
or all of our ISN®
software design
suite and certain patents, including IP associated with our
XBARTM
filters, to
potential customers in the RFFE industry. During the third quarter
of 2019, we completed an investment and commercial agreement with
Murata Manufacturing Co., Ltd., the first collaboration agreement
leveraging our XBAR IP. In all licensing arrangements with our
customers we intend to retain ownership of our technology,
software, designs and related improvements. Our goal is to
establish and leverage alliances with new and existing customers,
who will help grow the market for our designs by integrating them
with their own proprietary technology and products, or by using our
software products for their own designs, thus combining their own
particular strengths with ours to provide an extensive array of
solutions. We continue to expand our foundry program, which allows
fabless companies to enter into the filter business quickly and
efficiently. It is through this foundry program that we expect to
engage OEM’s directly to provide a significant cost and time to
market advantage.
Our costs include
employee salaries and benefits, compensation paid to consultants,
capital costs for research and other equipment, costs associated
with development activities including travel and administration,
legal expenses, sales and marketing costs, general and
administration expenses, and other costs associated with a
late-stage development, publicly-traded technology company. We
continue to add employees, as needed, to support the development of
our ISN®
platform,
applications and system test, research and development, as well as
sales, marketing and administration functions, to support our
efforts.
The amounts that
we actually spend for any specific purpose may vary significantly
and will depend on a number of factors including, but not limited
to, our expected cash resources, the pace of progress of our
commercialization and development efforts, actual needs with
respect to product testing, research and development, market
conditions, and changes in or revisions to our marketing
strategies. In addition, we may invest in complementary products,
technologies or businesses.
Critical
Accounting Policies and Estimates
Our discussion
and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which
have been prepared in conformity with accounting principles
generally accepted in the United States of America. Certain
accounting policies and estimates are particularly important to the
understanding of our financial position and results of operations
and require the application of significant judgment by our
management or can be materially affected by changes from period to
period in economic factors or conditions that are outside of our
control. As a result, they are subject to an inherent degree of
uncertainty. In applying these policies, our management uses their
judgment to determine the appropriate assumptions to be used in the
determination of certain estimates. Those estimates are based on
our historical operations, our future business plans and projected
financial results, the terms of existing contracts, our observance
of trends in the industry, information provided by our customers
and information available from other outside sources, as
appropriate.
A
description of our critical accounting policies that represent the
more significant judgments and estimates used in the preparation of
our financial statements was provided in the Management’s
Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the
year ended December 31,
2018.
Except for the adoption of ASU No. 2016-02, Leases
(Topic 842) and ASU No.
2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Non-employee Share-Based
Payment Accounting, there have been no changes
to our critical accounting policies and estimates described in the
Annual Report on Form 10-K for the year ended December 31, 2018
that have had a material impact on our condensed consolidated
financial statements and related notes.
Recently
Issued and Adopted Accounting Pronouncements
Recent accounting
pronouncements are detailed in Note 2 to our condensed consolidated
financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
Results of
Operations
Comparison of the Three and Nine Months Ended
September 30,
2019
and
2018
Revenues.
Revenues consist
of the recognized portion of amounts received from customers for
the development of our filter designs, milestone payments based on
the achievement of specific milestones and royalties from shipments
of our licensed designs. Revenues consist of the recognized portion
of the transaction price associated with our contracts
from
customers
recognized over time as the obligations under the terms of the
contract are satisfied. Generally, the transaction price includes
both upfront and milestone payments which we expect to receive in
exchange for providing services. For the three months ended
September 30, 2019 and 2018, we recognized a total of
$79,000
and
$115,000, respectively, of revenue.
For the nine months ended September 30, 2019 and 2018, we
recognized a total of $276,000 and $396,000, respectively, of revenue.
We expect revenues to continue to be recorded due to the
$2,109,000
of deferred
revenue we have recorded as of September 30,
2019.
Additionally, we expect to continue to recognize royalty revenue
from our license agreements.
During the third
quarter of 2019, we entered into a Collaboration and License
Agreement, dated as of September 30, 2019, with Murata
Manufacturing Co., Ltd., pursuant to which Murata has agreed to pay
us up to an aggregate of $9.0 million as pre-paid royalties and
other fees for the licensed designs and certain other intellectual
property developed in the collaboration, payable in installments
over a multi-year development period, with each installment
conditional upon our achievement of certain milestones and
deliverables acceptable to Murata in its discretion. We received
payment of the first $2.0 million under the agreement on October
11, 2019.
Research
and Development. These expenses relate
to direct engineering and other costs associated with the
development and commercialization of our technology, including the
development of filter designs for our customers and consist
primarily of the compensation costs of employees, including
stock-based compensation, and to a lesser extent, development
related costs for consultants, equipment, software and supplies. We
also include the costs for our intellectual property development
program under research and development. This program focuses on
patent strategy and invention extraction.
Research and
development expenses increased $1.0
million,
from $3.6
million in
the third quarter of
2018
to
$4.6
million in
the third quarter of
2019
and
increased $3.4
million,
from $10.2
million in
the first nine months of 2018 to $13.6 million
in the first nine
months of 2019. The increases were primarily related to higher
compensation expenses from increased headcount, as well as higher
development costs related to expanded activity on our
ISN®
platform,
XBARTM
and filter design
development. Additional increases related to increased occupancy
and software costs. We have increased our research and development
employees over the past year and we anticipate that our research
and development expenses will continue to increase as a result of
our planned growth and expenses associated with our contract with
Murata.
Sales,
Marketing and Administration Expenses. These expenses relate to our
sales and marketing efforts and our back-office support and include
compensation costs of employees, including stock-based
compensation. They also include expenses for facilities, travel
expenses, telecommunications, investor relations, insurance and
professional and consulting fees.
Sales, marketing
and administration expenses remained flat at $3.0 million
in both
the third quarter of
2018
and the
third
quarter of
2019
and
increased $0.4 million
from
$8.5
million in
the first nine months of 2018 to $8.9 million
in the first nine
months of 2019. The nine month increase is primarily the result of
increased payroll and related costs associated with headcount
increases. We anticipate that our sales, marketing and
administration expenses will likely continue to increase as a
result of planned growth.
Interest
and Investment Income. Interest and investment
income decreased by $135,000 from $177,000 in the third quarter of
2018
to
$42,000
in the
third
quarter of
2019
and decreased
by $103,000 from $323,000 in the first nine months of
2018 to $220,000 in the first nine months of
2019, primarily due to fluctuations in cash and investment balances
outstanding. We expect interest income to fluctuate in
proportion to our cash and investment balances.
Income
Taxes. We have earned minimal
revenues and are currently operating at a loss. In the nine
months ended September 30, 2019 and 2018, our only tax liability
was for minimum taxes in the states where we conduct business. In
the nine months ended September 30, 2018, the benefit from income
taxes recorded was the result of a benefit for the net change in
deferred income taxes for GVR, offset by expense related to minimum
state income taxes.
Liquidity
and Capital Resources
Financing Activities
We have earned
minimal revenues since inception. Our operations have been
funded with initial capital contributions and proceeds from the
sale of equity securities and debt.
As of
September 30,
2019, we
have raised aggregate gross proceeds of $97.0 million
through the use
of loans, convertible debt and equity through an IPO, private
placement financings, exercise of warrants and secondary offerings
of our common stock.
We had current
assets of $16.9 million
and current
liabilities of $5.7 million
at
September 30,
2019,
resulting in working capital of $11.3
million. This compares to
working capital of $24.1 million
at
September 30,
2018 and $18.5 million
at
December 31,
2018. The change in working
capital is primarily the result of use of cash in our normal
business operations.
Our condensed
consolidated financial statements account for the continuation of
our business as a going concern. We are subject to the risks
and uncertainties associated with a new business. Our
principal sources of liquidity as of September 30,
2019 consist of existing cash and
cash equivalents totaling $14.7
million,
which includes approximately $9.9 million
in proceeds from
our private placement of common stock that closed in September
2019. In the first nine months of 2019, we used
approximately $17.9 million
of cash and
investments for operating activities, the purchase of property and
equipment, and expenditures for patents. Due to these conditions,
along with anticipated increases in expenses, substantial doubt
exists as to our ability to continue as a going concern. After
evaluation of these conditions, we believe our current resources,
along with expected proceeds from forecasted billings, will provide
sufficient funding for planned operations into June of 2020. If
necessary, we will seek to raise additional capital from the sale
of equity securities or the incurrence of indebtedness to allow us
to continue operations. There can be no assurance that additional
financing will be available to us on acceptable terms, or at all.
Additionally, if we issue additional equity securities to raise
funds, whether to existing investors or others, the ownership
percentage of our existing stockholders would be reduced. New
investors may demand rights, preferences or privileges senior to
those of existing holders of common stock. Additionally, we
may be limited as to the amount of funds we can raise pursuant to
SEC rules and the continued listing requirements of NASDAQ. If we
cannot raise needed funds, we might be forced to make substantial
reductions in our operating expenses, which could adversely affect
our ability to implement our business plan and ultimately our
viability as a company. These condensed consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might result from
this uncertainty.
Cash Flow Analysis
Operating
activities used cash of $16.9 million
in the
first nine months of 2019 and
$13.6
million in
the first nine months of 2018. The
increase is primarily the result of our increased
loss.
Investing
activities provided cash of $15.8 million
in the
first nine months of 2019 and used cash
of $9.8
million in
the first nine months of 2018. In
2019, the cash provided was a result of net redemptions of
investments held to maturity, offset by the cash used to purchase
property and equipment and expenditures for patents. In
2018, the cash used was a result
of the net purchases of investments held to maturity and cash used
to purchase property and equipment and expenditures for
patents.
Financing
activities provided cash of $11.3 million
in the
first nine months of 2019 as a result of the net
proceeds from the sale of equity securities in a private placement
financing completed in August and September 2019, and the exercise
of Private Placement Warrants - 2016, which resulted in the
issuance of over 485,000 shares of common stock. Financing
activities provided cash of $21.5 million
in the
first nine months of 2018 as a result of
the net proceeds from the sale of equity securities in an
underwritten public offering completed in March 2018
along with the
underwriter overallotment option exercised in April 2018, and the
exercise of stock options and warrants.
Off-Balance
Sheet Transactions
We do not have
any off-balance sheet arrangements.
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk
Not
Applicable
Item
4.
Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
The
phrase “disclosure controls and procedures” refers to controls and
procedures designed to ensure that information required to be
disclosed in our reports filed or submitted under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, such as this
Quarterly Report on Form 10-Q, is recorded, processed, summarized
and reported within the time periods specified in the rules and
forms of the U.S. Securities and Exchange Commission, or SEC.
Disclosure controls and procedures are also designed to ensure that
such information is accumulated and communicated to our management,
including our chief executive officer, or CEO, and chief financial
officer, or CFO, as appropriate to allow timely decision regarding
required disclosure.
Our management,
with the participation of our CEO and CFO, has evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as
of September 30,
2019, the
end of the period covered by this Quarterly Report on Form 10-Q.
Based on such evaluation, our CEO and CFO have concluded that as
of September 30,
2019, our
disclosure controls and procedures were designed at a reasonable
assurance level and were effective to provide reasonable assurance
that 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 in the
rules and forms of the SEC, and that such information is
accumulated and communicated to our management, including our CEO
and CFO, as appropriate, to allow timely decisions regarding
required disclosure.
Changes in
Internal Controls over Financial Reporting
There was no
change in our internal control over financial reporting identified
in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d)
of the Exchange Act during the quarter ended September 30, 2019
that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Limitations
on Effectiveness of Controls and Procedures
In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design
of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to
apply judgment in evaluating the benefits of possible controls and
procedures relative to their costs.
PART II:
OTHER INFORMATION
Item
1.
Legal
Proceedings
We
are not party to any legal proceedings. We may, from time to time,
be party to litigation and subject to claims incident to the
ordinary course of business. As our product offerings continue to
develop, we may become party to an increasing number of litigation
matters and claims. The outcome of litigation and claims cannot be
predicted with certainty, and the resolution of any future matters
could materially affect our future financial position, results of
operations or cash flows.
Item
1A.
Risk
Factors
This
Quarterly Report on Form 10-Q contains forward-looking
statements, which are subject to a variety of risks and
uncertainties. Other actual results could differ materially from
those anticipated in those forward-looking statements as a result
of various factors, including those set forth in the risk factors
relating to our business and common stock contained in Item 1A of
our Annual Report on Form 10-K for the year ended
December 31, 2018. There have been no material changes to such
risk factors during the period ended September 30,
2019.
Item
5.
Other
Information
On November 4,
2019, the Compensation Committee of our Board of Directors approved
quarterly bonus awards to our executive officers pursuant to our
2019 Incentive Bonus Program for their performance during the third
quarter of 2019. The bonus awards were paid in the form of
restricted stock units for shares of our common stock in the
amounts set forth below. The restricted stock units vest in full on
November 25, 2019.
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Executive
Officers
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Number of
RSU Shares
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Martin McDermut
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9,011
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Robert Hammond
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4,452
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Neal Fenzi
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1,468
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Item
6.
Exhibits
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Exhibit
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Incorporated by Reference
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Filed
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Number
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Exhibit Description
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Form
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File Number
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Exhibit
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Filing Date
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Herewith
|
3.1.1
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8-K
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001-36467
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3.1
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6/5/2014
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3.1.2
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8-K
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001-36467
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3.1
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6/12/2019
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3.2
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8-K
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001-36467
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3.2
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6/5/2014
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10.1*
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X
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31.1
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X
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31.2
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X
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32.1#
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X
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101.INS
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XBRL Instance
Document
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X
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101.SCH
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XBRL Taxonomy Extension
Schema Document
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X
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101.CAL
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XBRL Taxonomy Extension
Calculation Linkbase Document
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X
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101.DEF
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XBRL Taxonomy Extension
Definition Linkbase Document
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X
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101.LAB
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XBRL Taxonomy Extension Label
Linkbase Document
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X
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101.PRE
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XBRL Taxonomy Extension
Presentation Linkbase Document
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X
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*
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Portions of this exhibit have
been omitted pursuant to Rule 601(b)(10)(iv) of Regulation
S-K.
|
# The
information in this exhibit is furnished and deemed not filed with
the Securities and Exchange Commission for purposes of section 18
of the Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of Resonant Inc. under
the Securities Act of 1933, as amended, or the Exchange Act of
1934, as amended, whether made before or after the date hereof,
regardless of any general incorporation language in such
filing.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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Date:
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November 7,
2019
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Resonant
Inc.
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By:
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/s/ Martin S.
McDermut
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Martin S.
McDermut
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Chief Financial
Officer
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(Principal
Financial and Accounting Officer)
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