ORGANIZATION AND DESCRIPTION OF BUSINESS
|9 Months Ended|
Sep. 30, 2015
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|ORGANIZATION AND DESCRIPTION OF BUSINESS||
ORGANIZATION AND DESCRIPTION OF BUSINESS
Resonant Inc. is a late-stage development company located in Goleta, California.
We are creating innovative filter designs for radio frequency, or RF, front-ends for the mobile device industry. The RF front-end is the circuitry in a mobile device responsible for analog signal processing and is located between the device’s antenna and its digital baseband. We use a fundamentally new technology called Infinite Synthesized NetworksTM, or ISNTM, 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 are using ISN to develop new classes of filter designs.
We believe licensing our designs is the most direct and effective means of delivering our solutions to the market. Our target customers make part or all of the RF front-end. We intend to retain ownership of our designs, and we expect to be compensated through license fees and royalties based on sales of RF front-end modules that incorporate our designs. We currently do not intend to manufacture or sell any physical products or operate as a contract design company developing designs for a fee.
We completed our first single-band filter design (a duplexer) for band 3 in the first quarter of 2015. This project was our principal focus from inception through the first quarter of 2015, when we started a second project. We developed the band 3 duplexer using commercial product specifications provided under a development agreement with a prospective customer. The prospective customer terminated the formal development agreement in the first quarter of 2015 and informed us that our design did not meet all the specifications.
We continued to work on this project directly with the filter manufacturer, or fabrication facility or fab, and have since completed the first generation of this band 3 filter. We consider our band 3 filter design to have competitive cost, size and performance. In July 2015, we completed the second generation of this band 3 filter at a reduced cost and size and with improved performance. The current design is in the qualification process with the fab which is a necessary step before final design acceptance. We continue to provide manufactured parts for testing and related performance data of the second generation band 3 part to prospective customers for consideration. We are also in discussions with other fabs to provide them our band 3 filter design for manufacturing and potential sale to their prospective customers. No prospective customer or fab has committed to use our band 3 filter design.
In the first quarter of 2015, we started a development project with a second customer, a filter manufacturer, for the design of our next single-band RF filter, another duplexer. This duplexer is for a different high-volume band than our first duplexer and, like Band 3, is another hard band, a traditionally-BAW band. We have designed several revisions, or turns, of the manufactured parts of our design for review and testing, and expect several additional turns prior to the design's completion. Our objective is to develop a new duplexer design for this second customer to market to RF front-end manufacturers and mobile device OEMs. The second customer has not committed to use the resulting design and terms of a license have not been finalized.
During the third quarter of 2015, we commenced feasibility work on a number of new filter designs for prospective customers. As part of these efforts, we are working with a new fab that has experience in manufacturing RF filters and has significant manufacturing capabilities. While we are pursuing formal filter design projects for these prospective customers with the hope of these becoming formal filter design projects, we are still in the feasibility stage and there can be no assurance that our efforts will be successful or, if successful, that any project will result in the completion or license of a filter design.
We believe that our ISN technology will also enable us to produce tunable, or reconfigurable, filters. These tunable filters are electronically programmed in real time for different RF frequency bands so that one filter can do the work of many and therefore replace multiple filters, significantly lowering the cost and size of RF front-ends. We commenced work on a tunable filter that reconfigures between two bands. We have advanced the design to initial parts and it is currently being optimized. We are concurrently designing a tunable filter reconfigurable between three bands. Several prospective customers have expressed interest in a prototype tunable filter and our goal is to have demonstration parts that meet each of the individual band specifications and performance requirements. We plan to make these parts available for assessment by these prospective customers with the goal of securing a lead customer thereafter. The design of a tunable filter has not ever been commercialized for use in the RF front end and there can be no assurance that we can ever design a tunable filter that meets the necessary specifications and performance criteria to become a commercial filter design nor that any prospective customer will be interested in advancing the design.
We were founded as Resonant LLC on May 29, 2012 (our inception date). We commenced business on July 6, 2012 with initial contributions from our founders and Superconductor Technologies Inc., or STI. The founders contributed $200,000 and agreed to work full-time without pay until we secured adequate funding. STI contributed a patent portfolio, software, equipment, temporary office space and an early version of the development agreement with our first customer.
The founders loaned us an aggregate of $200,000 during the first quarter of 2013, and we issued a series of warrants to the founders in connection with these loans. We refer to the founder loans as Bridge Loans and the founder warrants as Bridge Loan Warrants. We repaid the Bridge Loans in the second quarter of 2013.
We changed our form of ownership from a limited liability company to a corporation in an exchange transaction on June 17, 2013. The founders exchanged all of their units and warrants of Resonant LLC for common stock and warrants of Resonant Inc. STI exchanged all of its units of Resonant LLC for a $2.4 million subordinated convertible note of Resonant Inc., or Subordinated Convertible Note. The Subordinated Convertible Note was scheduled to mature on September 17, 2014, was interest free, was secured by all of our assets and was subordinated to our senior convertible notes. This note was converted into common stock in our initial public offering, or IPO.
We closed our first financing on June 17, 2013. We issued $7.0 million of Senior Convertible Notes in a private placement. The notes were to mature on September 17, 2014, bore interest at 6.0% per annum, were secured by all of our assets and would automatically convert into 2,087,667 shares of our common stock upon consummation of a qualified offering. Interest was payable in cash or shares of common stock. We paid a placement agent a commission of $700,000 and issued the agent warrants to purchase 208,763 shares of our common stock at an exercise price of $3.35 per share. We also issued the placement agent a warrant to purchase 222,222 shares of our common stock for business consulting services at an exercise price of $0.01 per share. These notes were converted into common stock in our IPO.
Initial Public Offering
We closed our IPO on June 3, 2014, pursuant to which we issued 3,105,000 shares of common stock (which includes the exercise in full by the underwriter of its over-allotment option) at a price of $6.00 per share. We received aggregate net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $16.2 million. Our common stock commenced trading on the Nasdaq Capital Market, or NASDAQ, under the symbol “RESN” on May 29, 2014, or IPO Date. The Securities and Exchange Commission declared effective a registration statement relating to these securities on May 28, 2014.
MDB Capital Group, LLC, or MDB, acted as the sole underwriter for our IPO. Simultaneous with the funding of the IPO, we issued the underwriter a five-year warrant to purchase 310,500 shares of common stock at an exercise price of $7.50 per share, which we refer to as the Underwriting Warrant. The warrant was not exercisable until November 24, 2014 (180-days from the date of the underwriting agreement).
Our Senior Convertible Notes automatically converted into 2,087,667 shares of common stock effective upon the completion of the IPO. We paid in cash the accrued interest of $404,000. Similarly, our Subordinated Convertible Note automatically converted into 700,000 shares of common stock. There was no accrued interest on this note. The shares issued on conversion of the Senior Convertible Notes were subject to a 180-day lockup which expired November 24, 2014, and the shares issued on conversion of the Subordinated Convertible Note were subject to a 12-month lockup which expired May 28, 2015.
Capital Resources and Liquidity
We have earned no revenue since inception, and our operations have been funded with initial capital contributions and proceeds from the sale of equity securities and debt. At December 31, 2014 and September 30, 2015, we had incurred accumulated losses of $21.2 million and $28.4 million, respectively, and we had cash and cash equivalents of $5.8 million and $2.9 million, respectively. Additionally, as of December 31, 2014 and September 30, 2015, we had $8.0 million and $5.0 million in short-term investments, respectively. These 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 for commercialization of our technology on a continuous basis because our business model involves developing and licensing custom filter designs.
Our condensed consolidated financial statements account for the continuation of our business as a going concern. However, we are subject to the risks and uncertainties associated with a new business. We do not yet have the ability to earn revenue, we have incurred significant losses from operations since inception and our operations have been funded with initial capital contributions, proceeds from the sale of equity securities and debt. Our principal sources of liquidity as of September 30, 2015 consist of existing cash balances and investments of $7.9 million. We have determined that additional capital from the sale of equity securities or the incurrence of indebtedness and, ultimately, the achievement of significant operating revenues will be required for us to continue operations beyond the second quarter of 2016. We continue to have discussions with potential customers and/or strategic corporate partners that may provide funding through debt and/or equity instruments or the licensing of future filter designs or development projects. There can be no assurance that additional financing will be available to us from potential customers or others on acceptable terms or at all. Additionally, if we issue additional equity securities to raise funds, whether to potential customers or other investors, 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 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. Due to these conditions, substantial doubt exists as to our ability to continue as a going concern. These condensed 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.
The accompanying condensed consolidated financial statements at September 30, 2015 and for the three and nine months ended September 30, 2014 and 2015 are unaudited, but include all adjustments, consisting of normal recurring entries, that management believes to be necessary for a fair presentation of the periods presented. Prior period figures have been reclassified, wherever necessary, to conform to current presentation. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2014 have been derived from our audited consolidated financial statements as of that date.
The condensed consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014. Our operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.
The entire disclosure for the nature of an entity's business, the major products or services it sells or provides and its principal markets, including the locations of those markets. If the entity operates in more than one business, the disclosure also indicates the relative importance of its operations in each business and the basis for the determination (for example, assets, revenues, or earnings).
Reference 1: http://www.xbrl.org/2003/role/presentationRef