Quarterly report pursuant to Section 13 or 15(d)

WARRANTS

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WARRANTS
9 Months Ended
Sep. 30, 2018
Warrants and Rights Note Disclosure [Abstract]  
WARRANTS
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.

Bridge Warrants

In January and March 2013, as an inducement to make bridge loans to the company, our founders received warrants to purchase a total of 124,998 units of Resonant LLC (the form of the Company at that time) at an exercise price of $0.40 per unit for a period of five years. We refer to these warrants as Bridge Warrants. On June 17, 2013, in connection with our acquisition of all of the outstanding membership interests of Resonant LLC in an exchange transaction, the founders exchanged their Bridge Warrants to purchase an aggregate of 124,998 Class B units of Resonant LLC for Bridge Warrants to purchase an aggregate of 249,999 shares of our common stock at an exercise price of $0.20 per share. All other terms of the Bridge Warrants remained the same. In January 2018, we entered into an agreement with our founders to exchange all of the warrants 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 general and administrative expenses during the nine months ended September 30, 2018. No expense was recorded in the three months ended September 30, 2018.

 
Private Placement Warrants - February 2017

In February 2017, we issued warrants to purchase 1,626,898 shares of our common stock at an exercise price of $8.25 in connection with our private placement sale of 1,626,898 shares of common stock. The warrants are exercisable for a period commencing 6 months and ending 30 months after the closing of the financing. We refer to these warrants as Private Placement Warrants - February 2017. We estimated the fair value of the Private Placement Warrants at $2,084,000 using the Black-Scholes option valuation model with the following assumptions: market prices of the stock of $4.91 per share, time to maturity of 3 years, volatility of 60%, zero expected dividend rate and risk-free rate of 1.50%. The allocation of the fair value of these warrants was included in additional paid-in capital on the consolidated balance sheet.

On December 19, 2017, we entered into a Warrant Exercise Agreement with the holder of Private Placement Warrants - February 2017 to induce the exercise of the 1,626,898 warrants in full. Pursuant to the agreement, the warrant holder exercised in full the warrant and purchased 1,626,898 shares of our common stock at an exercise price of $8.25 per share, for an aggregate exercise price of approximately $13.4 million and we paid the warrant holder an inducement fee of approximately $6.7 million, which resulted in net proceeds to us of $6.7 million. The inducement offer included in the Warrant Exercise Agreement was considered a modification to the warrant upon acceptance by the warrant holder. Upon modification of the warrant we were required to remeasure the warrant. We estimated the fair value of the Private Placement Warrants - February 2017 immediately prior to modification at $4.1 million using the Black-Scholes option valuation model with the following assumptions: market prices of the stock of $8.18 per share, time to maturity of 1.67 years, volatility of 60%, zero expected dividend rate and risk-free rate of 1.78%. We estimated the fair value of the Private Placement Warrants - February 2017 upon modification at $6.7 million using the Black-Scholes option valuation model with the following assumptions: market prices of the stock of $8.18 per share, time to maturity of 1 day, volatility of 10%, zero expected dividend rate and risk-free rate of 1.25%. The change in fair value was $4.1 million, and when combined with the cash inducement of $6.7 million, resulted in $2.6 million of expense, which was recorded as warrant inducement expense during the year ended December 31, 2017.

Private Placement Warrants - September 2017

In September and October 2017, we issued warrants to purchase an aggregate of 1,976,919 shares of our common stock at an exercise price of $4.85 in connection with our private placement sale of 1,976,919 shares of common stock. The sale was completed in two tranches with the first tranche, which closed on September 28, 2017, including 1,745,581 warrants, and the second tranche, which closed on October 2, 2017, including 231,338 warrants. The warrants are exercisable for a period commencing 6 months and ending 36 months after the closing of the financing. Collectively, we refer to these warrants as Private Placement Warrants - September 2017. We estimated the total fair value of the Private Placement Warrants - September 2017 at $3.6 million using the Black-Scholes option valuation model with the following assumptions: market prices of the stock of $4.49 for the first tranche and $4.69 per share for the second tranche, time to maturity of 3 years, volatility of 60%, zero expected dividend rate and risk free rates of 1.59% for the first tranche and 1.63% for the second tranche. The allocation of the fair value of these warrants was included in additional paid-in capital on the consolidated balance sheet.

Placement Agent Warrants - 2017

In addition to the Private Placement Warrants - September 2017 issued in connection with our private placement sale of 1,976,919 shares of our common stock, we also issued to the placement agent, warrants to purchase a total of 98,846 shares of our common stock at an exercise price of $4.85 per share. Upon closing of the first tranche on September 28, 2017, we issued 87,279 warrants, and upon closing the second tranche, we issued 11,567 warrants. The warrants are exercisable for a period commencing 6 months and ending 36 months after the closing of the financing. Collectively, we refer to these warrants as Placement Agent Warrants - 2017. We estimated the fair value of the Placement Agent Warrants - 2017 at $174,000 using the Black-Scholes option valuation model with the following assumptions: market prices of the stock of $4.49 per share for the first tranche and $4.69 per share for the second tranche, time to maturity of 3 years, volatility of 60%, zero expected dividend rate and risk free rates of 1.59% for the first tranche and 1.63% for the second tranche. The allocation of the fair value of these warrants was included in additional paid-in capital on the consolidated balance sheet.
    
A roll-forward of warrant share activity from January 1, 2017 to September 30, 2017 is shown in the following table:
 
Issued and
Outstanding
Warrants as of
January 1, 2017
 
Warrants
Issued
 
Warrants
Exercised/
Expired
 
Issued and Outstanding Warrants as of September 30, 2017
Bridge Warrants
249,999

 

 

 
249,999

Consulting Warrants
98,000

 

 
(41,889
)
(1)
56,111

Financing Warrants
78,186

 

 

 
78,186

Underwriting Warrants
310,500

 

 

 
310,500

IR Consulting Warrants
48,000

 

 
(42,000
)
(2)
6,000

Private Placement Warrants - 2016
1,995,124

 

 
(89,281
)
(3)
1,905,843

Underwriting Warrants- Public Offering 2016
135,750

 

 

 
135,750

Private Placement Warrants - February 2017

 
1,626,898

 

 
1,626,898

Private Placement Warrants - September 2017

 
1,832,860

 

 
1,832,860

 
2,915,559

 
3,459,758

 
(173,170
)
 
6,202,147


(1) During the nine months ended September 30, 2017, there were 41,889 common stock warrants that were exercised through cashless exercises which resulted in 41,800 shares being issued.

(2) During the nine months ended September 30, 2017, 42,000 warrants expired.

(3) During the nine months ended September 30, 2017, there were 89,281 common stock warrants that were exercised through cashless exercises which resulted in 37,031 shares being issued.

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
Issued
 
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 of common stock 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.