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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ýý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
For the transition period from to
Commission file number 001-36467
RESONANT INC.
(Exact Name of Registrant as Specified in Its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
45-4320930
(I.R.S. Employer
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
Common Stock, $0.001 par value
Trading Symbol(s)
RESN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý
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 o
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
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
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 o
Non-accelerated filer o
Accelerated filer ý
Smaller reporting company ý
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
As of June 28, 2019, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $51 million, based on the closing price on that date.
As of March 11, 2020, the registrant had 52,447,128 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form
10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of December 31, 2019, the last day of the fiscal year covered by this
Annual Report on Form 10-K.
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Special Note Regarding Forward-Looking Statements
RESONANT INC.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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 include, but are not limited to, statements concerning the following:
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our ability to fund our planned operations and implement our business
plan;
the status of filter designs under
development;
the prospects for licensing filter designs upon completion of
development;
plans for other filter designs not currently in
development;
potential customers for our
designs;
the timing and amount of future royalty
streams;
our plans regarding the use of proceeds from our financings and the expected duration of our capital
resources;
our plans regarding future
financings;
our hiring
plans;
the impact of our designs on the mobile device
market;
our business
strategy;
our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our
business;
the timing and success of our plan of
commercialization;
our dependence on growth in our customers’
businesses;
our customers’ success in marketing products incorporating our designs to their
customers;
the effects of market conditions on our stock price and operating
results;
our ability to maintain our competitive technological advantages against competitors in our industry and the related costs associated with defending intellectual
property infringement and other claims;
our ability to timely and effectively adapt our existing technology and have our technology solutions gain market
acceptance;
our ability to introduce new filter designs and bring them to market in a timely
manner;
our ability to maintain, protect and enhance our intellectual
property;
our expectations concerning our relationships with our customers and other third parties and our customers’ relationships with their manufacturers and
customers;
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the attraction and retention of qualified employees and key
personnel;
future acquisitions of or investments in complementary companies or technologies;
and
our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company and United States export
regulations.
These forward-looking statements speak only as of the date of this Form 10-K 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 set forth below in Part I, Item 1A, “Risk
Factors,” and in our other reports filed with the Securities and Exchange Commission, or SEC. Moreover, we operate in a very competitive and rapidly changing
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environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of
these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-K may not occur, and actual results could differ materially
and adversely from those anticipated or implied in our forward-looking statements.
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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-K to conform these statements to actual results or to
changes in our expectations, except as required by law.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed with the SEC as exhibits
thereto with the understanding that our actual future results and circumstances may be materially different from what we expect.
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PART I
ITEM 1. BUSINESS
Overview
Resonant is a late-stage development company that has created an innovative software, intellectual property, or IP, and services platform that has the ability to
increase designer efficiency, reduce the time to market and lower unit costs in the designs of filters for radio frequency, or RF, front-ends for the mobile device, automotive,
medical, internet-of-things and related industries. The RF front-end, or RFFE, is the circuitry in a 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. Our ISN® platform allows us to develop unique, custom designs that address the increasing complexity of the RFFE due to
increasing bandwidth requirements, such as by using carrier aggregation (the combining of multiple frequencies into a single data stream to increase throughput through higher
data rates), or CA, by both reducing the size of the filter and improving performance. Our goal is to utilize our ISN® platform to support our customers in reducing their time
to develop complex filter and module designs, to access new classes of filter designs, and to do it more cost effectively. Additionally, our ISN® platform has allowed us to
expand our customer focus beyond just filter manufacturers by enabling a new class of customer - fabless filter manufacturers. These companies do not have their own
internal filter fabrication facility, or fab, and typically already would be supplying other products in the RFFE to the original equipment manufacturers (OEMs), and, as a
result do not require a protracted new vendor qualification process in order to supply parts. Through our existing customer relationships, we are able to leverage our ISN®
tools to deliver cutting edge filter designs to these fabless filter manufacturers. In the second quarter of 2018, we deployed the first-ever module of our ISN® tool for
evaluation, the PMTx®, designed to significantly improve design and fabrication turn times by improving fabrication process control.
We are commercializing our technology through the creation of filter designs that address the problems in the high growth RFFE industry created by the growing
number of frequency bands in mobile and other RFFE enabled devices. The worldwide adoption of Long Term Evolution, or LTE, as the global standard, the transition to 5G,
and the use of mobile devices to access the Internet, has resulted in massive proliferation of frequency bands which, when combined with CA for higher data rates and
multiple input multiple output, or MIMO, has resulted in an ever-increasing number and complexity of filters in the RFFE. We have developed and continue to expand a
series of single-band designs for frequency bands presently dominated by larger and more expensive bulk acoustic wave, or BAW, filters. We are also developing multiplexer
filter designs for two or more bands to address the CA requirements of our customers. We are using our ISN® platform to efficiently integrate these designs into RF modules
for our module customers. Finally, we are developing unique filter designs, enabled by ISN®, to replace multiple filters and associated componentry for many bands, with
higher performance. Currently, we are leveraging ISN® to develop these designs targeted for either the Surface Acoustic Wave (SAW) or Temperature Compensated, Surface
Acoustic Wave (TC-SAW) manufacturing processes. In 2018 we further extended ISN® for BAW designs, which has resulted in our invention of a resonator structure based
on a combination of interdigital transducer (IDT) and piezoelectric membrane, the first family of which we call XBARTM, which exhibits performance parameters suitable for
5G applications - high frequency operation, large bandwidth and high power reliability. Our success with XBARTM is dependent on our ability to develop high frequency
filters utilizing these resonator structures that are successfully adopted by our targeted customers, which will be determined by our ability to show improved performance over
competing products or significantly reduce the size and cost of their products.
We believe licensing our designs, either as prepaid royalties or royalties paid as products ship, is the most direct and effective means of validating our ISN® platform
and related IP libraries to address this rapidly growing market. 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 and leverage our ISN® platform.
Our customer engagement process typically begins with the execution of a Joint Development Agreement, or JDA, and License Agreement, or LA, for specific
bands. Depending on the complexity of the design, we estimate that initial samples of products to OEMs, will occur typically within nine to thirty-six months following
execution of a license agreement. We classify these new designs as either ISN® Ready (9-12 months), ISN® Pilot (12-18 months), ISN® Advanced (18-36 months) or ISN®
Development (Custom). Following these development cycles, designs are manufactured, qualified by our customers and sampled to OEM customers. Our customers can take
from three to six months to qualify a design and then the OEMs can take an additional three to six months, or longer, to qualify a design as fit for use, reliable and ready for
mass production. The point
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at which an OEM begins taking product from our customers in mass production is typically when royalty revenues would begin. Our customer agreements typically provide
for upfront design fees and royalty payments for each unit sold using our filter designs and typically last for a minimum of two years, but may be renewed for a longer period.
We began 2016 with no customers under contract and no license agreements and we ended the year with six customers and more than 25 designs contracted. These
included a wide range of complex designs ranging from sophisticated "WiFi Co-existence" filters to high frequency duplexers and quadplexers. In late 2016, we expanded our
customer focus beyond filter manufacturers operating their own fab to include fabless filter manufacturers.
During 2017, we continued to expand our engagements with existing customers while identifying and contracting with new customers and ended the year with a total
of eight customers and more than double the number of designs contracted. In many cases the expansion in the number of contracted designs came from customers who
already had a significant investment in working with Resonant and confidence in the capabilities of the ISN® platform, IP and design team.
Also, in 2017, in order to further facilitate our fabless filter program, and to provide manufacturing stability across the supply chain, we embarked on the creation of
our ISN® Foundry Program. Foundries joining Resonant’s program first complete a foundry evaluation process to ensure alignment with our customers for filter performance,
manufacturing quality and capacity, and business practices. Once the evaluation is completed, the foundry runs a characterization lot, used to create a foundry process design
kit, after which we are ready to start designs for manufacture in the foundry. Packaging/Back-end vendors can also join the program by completing a back-end evaluation
process to match their capabilities with foundry partners and our customers. Through this program we enable a secure supply chain for all our customers.
In 2018, we hired a vice president of software development to continue the expansion and conversion of our ISN® platform for cloud-based delivery. Improving
design efficiency with software development and enhancement to our ISN® platform and related modules is a top priority to maximize the effectiveness of our engineers. In
addition, we hired a vice president of business operations to implement scalable business processes to improve efficiency while we grow operations. Further in 2018, we
continued the development of our phone-board testing and reliability capabilities, in order to support our customers with proficiencies critical for their success.
In 2019, we began development of Filter IP Standard Library designs to enable faster time to market for our customers. Further, the first Filter IP Library design was
incorporated into Cadence Design Systems, Inc.'s AWR design suite, allowing module designers access to Resonant filter designs. At Mobile World Congress we showed the
first 5G filter based upon XBARTM technology - an n79 filter. Subsequently, we accepted a $7.0 million investment and signed a commercial agreement for the development
and license of filters for four bands based on XBARTM technology, with the industry's largest provider of filters for the RFFE. The commercial agreement provides for our
receipt of up to an aggregate of $9.0 million in 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 conditioned upon our achievement of certain milestones and deliverables acceptable to
our customer in its discretion. We received an initial payment for $2.0 million in pre-paid royalties from this customer during the fourth quarter of 2019. We finished 2019
with 12 customers and over 85 designs contracted to date.
We plan to continue to pursue filter design projects with existing and potential customers and other strategic partners. These types of arrangements may subsidize the
expansion of our IP libraries and further the development of our ISN® platform, as well as offer complementary technology and market intelligence. In addition, we will
continue to help develop a fabless filter eco-system to support the growth in filter volumes for our customers. We are also investigating the potential of licensing part or all of
our ISN® software design suite to potential customers in the RFFE industry. However, 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.
Our History
Our inception date is May 29, 2012. We commenced business on July 6, 2012 and completed our initial public offering, or IPO, on May 29, 2014.
In July 2016, we acquired GVR Trade S.A., or GVR, a Swiss-based company specializing in the consultation and design of SAW and BAW devices. GVR is a
wholly-owned direct subsidiary of Resonant.
Our principal executive offices are located at 175 Cremona Drive, Suite 200, Goleta, California 93117, and our
telephone number is 805-308-9803.
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Industry Background
Glossary
The following is a glossary of useful terms:
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4G—4th Generation is a mobile communications standard intended to replace 3G, allowing wireless Internet access at a much higher
speed.
5G—5th Generation is a mobile communications standard and is the latest iteration of cellular technology, engineered to greatly increase the speed and
responsiveness of wireless networks.
Band, channel or frequency band—a designated range of radio wave frequencies used to communicate with a mobile
device.
Bulk acoustic wave (BAW)—an acoustic wave traveling through a material exhibiting
elasticity.
Duplexer—a bi-directional device that connects the antenna to the transmitter and receiver of a wireless device and simultaneously filters both the transmit
signal and receive signal.
Carrier Aggregation (CA)—the aggregation, or adding together, of multiple carriers (frequency bands) to meet the LTE-Advanced specification requirements,
allowing for increased transmission bandwidth delivery of higher data rates, improved capacity and more efficient use of a carriers fragmented spectrum.
Filter—a series of interconnected resonators designed to pass (or select) a desired radio frequency signal and block unwanted
signals.
Resonator—a device that naturally oscillates (or resonates) at specific frequencies. The oscillations in a resonator can be either electromagnetic or mechanical
(including acoustic). Resonators are the building blocks for filters.
RF front-end (RFFE)—the circuitry in a mobile device responsible for the analog signal processing which is located between the antenna and the digital
baseband.
Surface acoustic wave (SAW)—an acoustic wave traveling along the surface of a material exhibiting elasticity, with an amplitude that typically decays
exponentially with depth into the substrate.
Temperature-Compensated SAW (TC-SAW)—a SAW device which has additional material alterations to reduce its variation with changes in
temperature.
The Mobile Internet
The need for multiplexers, duplexers and other filters in the RFFE of mobile devices continues to grow rapidly due to rising consumer demand for always-on
wireless broadband. Mobile devices such as smartphones and tablets are quickly becoming the primary means of accessing the internet. According to Cisco, worldwide mobile
data traffic grew 71% in 2017 and will grow at a compounded annual growth rate of 46% from 2017 to 2022. Cisco also predicted that smartphones will surpass 90 percent of
mobile data traffic by 2022.
The exponential growth in mobile data traffic is testing the limits of existing wireless bandwidth. Carriers and regulators have responded by opening new RF
spectrum, driving up the number of frequency bands in mobile devices, and thus pushing mobile phone designers to make more efficient use of spectrum.
According to Yole Development, the market for RFFE filters in mobile devices was 40.3 billion filters in 2017 and will grow to an estimated 104.5 billion filters by
2022.
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Figure 1—Projected growth of the market for RFFE filters including duplexers and quadplexers in mobile devices from 2017 through 2022 (in billions of filters).
Source: Yole Development.
In addition to RFFE filter unit growth, filter sales growth is expected to follow and is estimated to be $7.2 billion in 2017 and is forecasted to reach $20.2 billion by
2022, according to Yole. By 2025 Yole estimates that filters will represent 70% of the RFFE component market.
Figure 2—Projected growth of the market for RF front-end filters, including duplexers and quadplexers, in mobile devices from 2017 through 2022 (in billions of
dollars). Source: Yole Development.
Adding RF spectrum to increase capacity and data-rate is not a complete solution. The added spectrum for 4G does not come in large contiguous blocks, but rather in
small channels or bands of varying size and frequency. Thus, more data means more bands, and the result is a rapid and substantial increase in the number of bands in mobile
devices. 5G introduces
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new challenges for filter performance and complexity, by adding much larger blocks of spectrum at higher frequencies (above 3GHz).
Challenges Faced by the Mobile Device Industry
The world is progressing toward ubiquitous RF coverage in which almost all devices will be connected, most wirelessly. Technology experts predict that by 2024
there will be over 22.2 billion connected devices operating worldwide and we will be measuring mobile usage in Exabytes. This overwhelming demand for wireless data has
driven the carriers and regulators to open new spectrum bands.
This substantial and rapid increase in bands has created several significant problems, including a corresponding increase in the number of filters and duplexers in
mobile devices. Traditional RF front-end solutions typically require one duplexer for each frequency band. The most recent iPhones support coverage for 20 FDD-LTE and 8
TDD-LTE bands, in addition to support for previous wireless technology generations, 3G and 2G, with each band requiring a filter, either as an individual filter, a duplexer or
a quadplexer, depending upon the spectrum and CA requirements. This increase in number and complexity of filters is dramatically driving up the cost of RF front-ends. In the
latest global smartphones, filters and duplexers comprise more than half of the cost to the RF front-end, according to a Barclays' analysis. The dramatic increase in the number
of filters required, which includes Chip Scale Package, or CSP, Wafer Level Package, or WLP, filters, duplexers, quadplexers, with multiple sizes and multiple packaging
substrates, each requiring a new design, requires an increase in design capacity, or improved design efficiency. ISN® improves the design efficiency by accurately modeling
the performance of acoustic wave filters.
The growing number of filters is also increasing the total size of the RF front-end. In some cases, size constraints require the OEM to fragment its product offering
into multiple versions, each with a limited set of filters customized for a particular geographic region. Multiple versions of a mobile product increases manufacturing,
inventory and distribution costs. In addition, consumers can find it difficult to roam between carriers and/or countries due to this splintering of bands and phone models. Phone
OEMs would prefer to make one version of a product containing a full set of filters that can be electronically selected as required for a particular carrier network.
In addition, the higher frequency 4G bands tend to use relatively expensive BAW technology. Phone OEMs would prefer to use SAW technology because of its
lower cost and smaller size. However, conventional filter designs using SAW technology do not perform adequately in high frequency bands or in bands with closely spaced
receive and transmit channels, typical of many new bands.
Adding to the complexity of the industry, mobile devices must now be capable of receiving from two, to as many as five, downlink bands simultaneously, known as
downlink CA. This CA requirement creates the need for complex multiplexing filters, or multiplexers, which are significantly more complex than duplexers and effectively
require four filters for each CA combination. There will be an estimated 200 worldwide combinations of CA cases, creating increased complexity and cost to RFFEs. In the
case of a quadplexer, with four different frequency bands, within each band the signal loss must be minimized, while rejecting three bands often in close proximity. Duplexers
must only reject a single band. Mobile Experts predicts that more than 28 billion RFFEs will be shipped supporting CA in 2022. This rising complexity in the industry is also
exacerbating the constraints on design capacity and resources.
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Figure 3-Projected growth of the market for mobile devices enabled for CA from 2017 through 2022 (in billions of units). Source: Mobile Experts.
In addition to the challenges described above, 5G will further exacerbate the problems of more demand for filters, filter designs, and more complexity and
integration in the RFFE. 5G comprises three distinct segments:
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Enhanced mobile broadband: Increased bandwidth for extreme data-rates and capacity to support wireless video
everywhere;
• Mission critical services: High reliability, low latency and high security for automotive, health and government;
and
• Massive Internet of Things: Low cost, low energy, long life for wearables, smart home devices and interconnected
devices
All three of these segments require filters and will further accelerate the already substantial growth in the filter market.
Our Technology
RFFE module companies currently produce filters internally or purchase filters from third-party manufacturers, such as Broadcom, Murata, Taiyo-Yuden and
RF360. These module companies and filter manufacturers design filters using their own internal resources, which we believe are proving insufficient to meet the explosive
growth in both total global filter demand and unique filter designs, as well as the increasingly complex filter requirements necessitated in part by crowded spectrum and
carrier aggregation. We believe that our patented ISN® technology will enable us to design complex filter products at approximately half the unit cost and in approximately
half the time of traditional approaches. ISN® can be summarized as a three-step process:
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We synthesize RF acoustic devices. We have developed a large suite of proprietary mathematical methods and software tools that allow us to find better solutions
because we can explore a much larger set of possible solutions. Our ISN® tools and methods draw upon a century of network synthesis techniques. In other words, rather
than rely on a single design solution (the acoustic wave ladder that is used almost solely in this industry to date), we generate, or synthesize, large numbers of unique solutions
specifically for each set of requirements. This allows us to create filters using existing manufacturing methods, such as SAW manufacturing methods, that perform as well as
those using the higher cost methods of BAWs. These synthesized solutions provide a framework for generating circuit models for optimization.
We use circuit models to optimize initial designs. Most of this industry models acoustic wave filters using a coupling-of-modes, or COM, model. In contrast, we use
circuit models derived from the actual physics of acoustic wave filters. Circuit models are computationally much faster, which allows for very quick optimization of the many
possible solutions that result from the synthesis process. We can quickly compare large numbers of different, optimized solutions before commencing the third step - lengthy
but highly accurate simulations based on fundamental methods.
We use fundamental models to simulate final designs. Our highly accurate models are based entirely on fundamental material properties and dimensions, again
unlike the common practice in this industry today. The precision and accuracy of our models allows for far fewer turns through the fab to reach the desired product
performance. Because our models are fundamental, integration with our foundry and fab customers is eased due to the understanding of the basic material properties and
dimensions of the fab.
Our Commercialization Plan
We will continue to pursue filter design projects with existing and potential customers and other strategic partners, and we believe licensing our designs is the most
direct and effective means of delivering our solutions to the market and validating the technical advantages of our tools, IP and team. In addition, we will continue to help
develop a fabless filter eco-system to support the growth in the filter volumes for our customers. We intend to retain ownership of our technology, designs and related
improvements and charge royalties based on sales of filters that incorporate our designs. We do not intend to manufacture or sell any physical products or operate as a contract
design company developing designs for a fee. Our strategy is to establish and leverage alliances with customers, who will help grow the market for our designs by integrating
them with their own proprietary technology and products, thus combining their own particular strengths with ours to provide an extensive array of solutions and to develop
and license filter designs that offer improvements in the time to develop, cost, size and performance of RFFEs. The goal for our designs is to improve profit margins and
increase market share for our customers.
Our customers are filter manufacturers, RFFE module manufacturers, RF active and passive component suppliers and potentially mobile handset OEMs. Currently,
for most of our customers, we license specific, custom designs. In the fourth quarter of 2018 we introduced and announced the first customer for our standard IP filter library
of products. In these cases we develop a standard design at one of our qualified foundries and customers can then license this design without paying for or waiting for
completion of development, hence minimizing their cost and reducing time to market. We charge royalties at a fixed amount per filter or as a percentage of sales price. In
October 2019, we announced a commercial agreement with the industry's largest provider of filters for the RFFE to develop and license filters based on XBARTM technology.
In this case, the customer agreed to pay up to an aggregate of $9.0 million in 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 our customer in its discretion. We expect to generate substantially all of our near-term revenues with these types of licensing arrangements.
Each filter design and related royalty stream is expected to have a finite commercial life as mobile devices continue to evolve. Our plan is to offer our customers replacement
designs as existing designs become obsolete.
We anticipate that once a development and license agreement is signed and design begins, there could be 21 to 48 months before the start of royalty payments under
a particular license, depending on the complexity and scope of the engagement.
Our products will be designed for manufacture with existing high-volume fabrication processes allowing rapid time to market, but we do not plan to manufacture or
sell any physical components. Unlike a manufacturing company, we intend to create designs for manufacturers, eliminating for us the costs and problems associated with
manufacturing and inventory. This allows us to concentrate on our unique expertise, leaving the hardware manufacturers to drive their own economies of scale.
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Single Band Designs
We continue to develop a series of SAW filter designs for RF frequency bands presently dominated by the larger and more expensive BAW filters. In 2018, we
continued to develop single band, SAW filter designs for customers. Some of these filter designs are for duplexers that have historically been TC-SAWs or BAWs while
others are for discrete SAW filters that may need improvements in performance, size or cost. The single band designs included WiFi Co-Existence filters, which pass licensed
wireless frequencies, while protecting WiFi from interference, and designs for module applications which require wafer-level packaging (WLP) and modeling of the module
board. We believe that, using our ISN® technology, combined with our experience and know-how, we can design innovative SAW filters that meet the performance
requirements for many of these bands but at significantly less cost than that of BAW filters they would replace. These single band filter designs are the earliest opportunity
for royalty revenues, and represented the nominal royalty revenues in 2018. In 2018 and 2019, we continued to develop single band designs using TC-SAW processes in order
to take advantage of the improved temperature stability.
Multiplexer Designs
Wireless carriers worldwide are experiencing increasing demand for higher data speeds. CA allows multiple data streams from different frequencies to be added
together to provide increased data rate for the mobile users. However, CA further complicates the required filter characteristics. Quadplexers, (4-RF path multiplexer) as
described above, enable CA on both receive and transmit paths and reduce the RFFE complexity by reducing the number of switches, but the complexity of the filters
themselves increases dramatically. During 2018, we expanded our capability to optimize the performance of quadplexers on OEM phone-boards in order to help our
customers demonstrate "real world" performance. During 2019, we expanded our capability to produce TC-SAW and high power quadplexer designs. We believe that our
ISN® technology is ideally suited to these difficult filter design problems that cover a wide frequency range with much more demanding performance requirements.
Although some band combinations for aggregation will not require multiplexers, we believe that multiplexers are the best solution for bands in close frequency
proximity. We are developing high performance multiplexer designs to address this growing market.
Advance Developments
We believe that our ISN® technology will also enable us to design novel filters that are more than simple replacements to existing slots, but rather can enable an
architecture change, or can provide a step function improvement in performance, size and cost to a handset manufacturer. These include:
•
•
High frequency, wide bandwidth filters for 5G - large instantaneous bandwidth filters at high frequency (above 3GHz) are required for 5G to support high
data-rates. Filters using XBARTM resonators will be ideally suited for these applications
Triplexers/Multiplexers - wideband, low loss multiplexed filters which allow efficient sharing of antennas. As more spectrum becomes available above
2.5GHz the focus will be in minimizing the losses at the higher frequency.
• Multi-passband Filters - small size, low loss filters to maximize printed circuit board space and minimize loss, particularly suited for CA applications. The
absence of switching elements further reduces size and cost for CA.
Our immediate focus is to address the problems in the RFFE with innovative single-band and multiplex designs made possible with our ISN® technology. These
designs present the greatest near-term potential for commercialization of our ISN® technology. We expect the trend towards spectrum proliferation, in addition to CA and
MIMO, will require complex filter multiplexing. Compounding the demands described above, large bandwidth filters for 5G will further increase the complexity. We believe
our ISN® technology will enable cost effective designs for these applications.
We also believe that the power of Resonant ISN® tools and methodology will continue to enable fabless customers and filter foundries to newly enter or expand their
participation in the supply chain for RF filters. In late 2016, we expanded our customer focus to include fabless filter manufacturers, which are companies that do not have
their own internal filter fabrication facility. Typically, these companies already are supplying other products in the RFFE to the OEM, and as a result, do not require a
protracted new vendor qualification process in order to supply parts. In 2017, to further facilitate our fabless filter program and to provide manufacturing stability across the
supply chain to our fully integrated filter customers, we created our ISN® Foundry Program. Foundries joining the ISN® Foundry Program first complete a foundry evaluation
process to ensure alignment with our customers for filter performance, manufacturing quality and capacity, and business practices. Once the evaluation is completed, the
foundry runs a characterization lot, used to create a foundry process design kit, after which we are
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ready to start designs for manufacture in the foundry. Packaging/Back-end vendors also can join the program by completing a back-end evaluation process to match their
capabilities with foundry partners and our customers. It is through this program that we can enable a secure supply chain for all our customers.
Intellectual Property
We have an active program protecting our proprietary technology. In protecting our technology, we make use of patent protection, trade secret protection, trademark
protection and mask works protection. To maximize these protections, we maintain active intellectual property development and protection programs, including with respect
to patents, trade secrets, trademarks and mask works.
Our patent portfolio reflects both the initial technology originated at and contributed to us by Superconductor Technologies Inc., or STI, as well as our own patent
filings since our founding, and continues to be the result of an active and ongoing program to identify, protect and commercialize our intellectual property. This program
includes the development of a comprehensive patent strategy. We engage in a thorough process of patent landscaping that provides an in-depth analysis of not only the
markets we are addressing, but also adjacent markets, so that we can tactically and strategically protect our position in the market through patent filings. We also routinely use
specialized outside firms to assist in these endeavors. These firms assist with invention identification, intellectual property strategy and competitive landscape analysis.
Through our landscaping and advanced product development processes we have plans to file additional patents in 2020.
Our patent portfolio comprises more than 200 issued and pending U.S. and foreign patents, with more than 50 targeting 5G. This patent portfolio relates primarily to
the following subject matters:
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Physical Implementation
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Semiconductor materials and processes
Resonator and filter designs
Design Synthesis and Optimization Speed
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Network Synthesis
Image Design
Circuit Designs
Simulation Accuracy
Next Generation Designs/Architectures
Simplifying the RFFE
•
Circuit Structure
Critical Design Requirements
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•
Power handling and linearity
Temperature dependence
Yield Analysis
We have a formal trade secret program to identify and protect technologies and know-how that derive significant economic value from being secret. This program is
managed to provide the optimal levels of protection and competitive advantage to us. We protect our trade secrets and other proprietary information by maintaining the
secrecy of such information, including by requiring confidentiality agreements from all our employees, consultants and third parties having access to such information. We
have a number of trade secrets already protected in this program and we expect to add more such trade secrets into the program in 2020.
We have also registered U.S. trademarks for ‘‘Resonant®’’, ‘‘ISN®”, “Infinite Synthesized Networks®’’ , “XBAR®” and “PMTx®’’.
There can be no assurance that our pending patent applications or any future patent applications will be approved or will not be challenged successfully by third
parties, that any issued patents will protect our technology or will not be challenged by third parties, or that the patents of others will not have an adverse effect on our ability
to do business. Furthermore, there can be no assurance that others will not independently develop similar or competing technology or design around any patents that have been
or may be issued to us.
Despite our efforts to maintain the secrecy of our trade secrets, there also can be no assurance that others will not gain access to our trade secrets, or that we can
meaningfully protect our technology. Nor can there be assurances that we will succeed in enforcing our trade secrets in the event others improperly gain access to them. In
addition, effective trademark, copyright and trade secret protection may be unavailable or limited in certain foreign countries. Although we intend to protect our rights
vigorously, there can be no assurance that such measures will be successful.
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Competition
To our knowledge, we have no direct competitors in the electronic design automation or licensing business that are exclusively focused on RFFEs. We have spent
many years developing ISN®, and our own patented suite of design tools created specifically for this purpose. No comparable acoustic wave filter design tool exists in the
market today to our knowledge. In combination with our experienced design team, we believe we offer our customers a novel solution to the need for increasingly complex
filter designs developed by an independent, stand-alone company that is not presently offered by any other company.
We have advantages that we believe present significant barriers to entry for potential competitors that desire to replicate our business model:
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a large and growing portfolio of patents and trade secrets;
a suite of proprietary software design tools;
a growing number of customers;
a highly experienced design team; and
a multi-year technology lead.
We do compete with the existing filter designs and design capabilities of the design teams at our customers and target customers and their filter manufacturers. We
must demonstrate to our customers, target customers and their filter manufacturers, that switching to our designs will give them a competitive advantage by providing market
entry or sufficiently improving the cost, size, and performance of their current products to justify our royalty rates.
The use of our patented ISN® tools, not only enables lower cost and smaller size SAW solutions for single band and multiplexer designs but also enables
development of creative filter solutions for next generation RFFE architectures that, if successful will offer new, highly competitive solutions to many of the challenges facing
the manufacturers of RFFE modules.
Employees
We have 77 employees as of December 31, 2019, 58 of which are on our technical staff and 19 of which are devoted to finance, sales, marketing and administration
matters. We also use several outside consultants.
Where You Can Find Other Information
Our principal executive offices are located at 175 Cremona Drive, Suite 200, Goleta, California 93117, and our
telephone number is 805-308-9803. We also have development offices in Burlingame, California and Neuchatel, Switzerland
and lease office space in Austin, Texas as well as Anyang, South Korea. Our website address is www.resonant.com. The
information contained on, or that can be accessed through, our website is not a part of this report. Information we furnish or file
with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in
these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed
therewith, are also available at the SEC’s website at www.sec.gov.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the
other information in this Form 10-K, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks
materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock
could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Our Industry
We may require additional capital to continue operations in the future, which capital may not be available on terms acceptable to us, if at all.
As of December 31, 2019, our accumulated deficit totaled $122.5 million. During 2019 our net loss totaled $29.9 million and we used $21.9 million of cash and
investments for operating activities, the purchase of property and equipment and expenditures for patents. To date we have not generated significant revenues to enable
profitability. We expect to continue to incur significant losses. These factors raise substantial doubt regarding our ability to continue as a going concern. At December 31,
2019 we had cash and cash equivalents of $10.7 million. In February 2020 we completed a common stock equity offering that netted $26.3 million. In the absence of a
significant revenue increase these cash resources will provide sufficient funding into early 2021. We are subject to the risks and uncertainties associated with a new business.
Our continuance as a going concern is dependent on future profitability. We are actively pursuing expanding our technology portfolio, increasing our revenue opportunities by
completing deliverables under current contracts and entering into new prepaid and paid up royalty arrangements, and efficiently managing operations and exploring cost
saving opportunities. We may not be successful in these efforts. We may need to seek to raise additional capital from the sale of equity securities or incurrence of
indebtedness. There can be no assurance that additional financing will be available to us on acceptable terms, or at all in which case 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. Our consolidated
financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might result from the outcome of this uncertainty.
We have a history of operating losses and we may never achieve or maintain profitability or positive cash flows.
We have a limited operating history and utilize planned milestones for investors to evaluate our progress. We have generated minimal revenues and we have a
history of losses from operations with an accumulated deficit as of December 31, 2019 of $122.5 million. Our operations have been funded with initial capital contributions,
proceeds from the sale of equity securities and debt. We intend to continue to make investments to support our business growth and may require additional funds to respond to
business challenges, including the need to refine existing technology, develop new technology, improve our operating infrastructure or acquire complementary businesses and
technologies. Our ability to generate revenues and achieve profitability and, ultimately, positive cash flows, may depend on whether we can obtain additional capital when we
need it and will depend on whether we continue to refine our technology and find additional customers who will license our designs. There can be no assurance that we will
ever generate meaningful revenues, or that the revenues we do generate will be sufficient to achieve profitability and positive cash flows.
Initial shipments by our customers of filters produced from our designs may not result in high-volume sales and meaningful revenues.
We have had limited success in producing designs that our customers have had fabricated into filters shipped for use in mobile devices. While we believe initial
shipments by customers of our designed filters represent a next step in validating our business model, initial shipments are not necessarily indicative of meaningful unit
volumes or royalty revenues. Often our customers’ initial filter shipments are to distributors as design kits or early stocking inventory, and high-volume sales and resulting
royalty revenues may not materialize from these filters.
Our business model is based on licensing filter designs, which is unproven. Historically, our target customers have relied on their own filter designs or purchased
finished filters from a manufacturer, and have not licensed third-party designs. Consequently, we may not succeed in our licensing strategy, which would require us to
adopt a new business model and would have a material adverse effect on our ability to generate revenues and potentially threaten our viability.
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Our business model is based on licensing our proprietary filter designs. We do not intend to manufacture or sell any physical products or operate as a contract design
company developing designs for a fee. We believe licensing our designs is the most direct and effective means of delivering our solutions to the market. We intend to retain
ownership of our designs and charge royalties based on sales of filters and RFFE modules that incorporate our designs.
Our target customers either make part or all of the RFFE. These customers have historically used their own filter designs or purchased finished filters from a
manufacturer. Our business model is new to the filter industry and remains unproven, as we have yet to receive meaningful royalty payments from our licensed designs. The
failure to scale our business model would have a material adverse effect on our ability to generate revenues and potentially threaten our viability.
We may not be able to complete some of our designs because they do not meet our customers' expectations. Even if we succeed in developing a design that meets all of a
customer's requirements, the customer could decline to use our design in their products. Further, our customer's product could fail in the marketplace. Any of these
events would have a material adverse effect on our business and potentially threaten our viability.
We develop filter designs to meet our customers' stringent performance specifications. Our customers often ship pre-production samples of our designed filters to
their customers for further evaluation. For some designs, mass production may commence. However, the filter qualification process is demanding and some designs will not
result in volume production. If successfully developed and selected by our customer, our designs will compete against other technologies for inclusion in our customers’
products. Our customers’ final products will then compete against other products and technologies for inclusion in mobile devices in the marketplace. There can be no
assurance that we can complete our designs, that our final designs will have acceptable performance and meet our customers’ specifications, or if our pre-production sample
filter shipments will be selected for production. Even if our filter designs have acceptable performance, there are a number of other considerations influencing the customer’s
decision whether to use our design, such as packaging type and manufacturing cost, many of which are beyond our control. The decision to use our designs is solely within
our customers’ discretion. Further, if our filter design is selected by a customer for inclusion in its design or product, there is no guarantee that the customer’s design or
product will be selected for inclusion in mobile devices. The failure of a significant number of our designs to be selected at the design stage or the device stage would have a
material adverse effect on our business and potentially threaten our viability.
We are not a filter manufacturer, and thus we are reliant on filter fabricators or manufacturers to manufacture filters from our designs. For some of our customers that
will not themselves manufacture filters from our designs, we may be required to have our customer approve the filter manufacturer, and the customer will not license our
design unless the manufacturer can demonstrate the ability to economically produce the filter in large volumes.
Even though some of our designs have reached commercialization on a small scale, and we believe our future completed designs can be manufactured using existing
technology, we remain dependent on the manufacturer’s filter fabrication processes and capabilities for our filter designs. Even with a fully compliant filter design, the
customer may not license our design unless the manufacturer can demonstrate the ability to economically produce the design in large volumes. We do not have any control
over the manufacturer and cannot provide assurances that the manufacturer will have the necessary technology, skills and resources to successfully manufacture filters from
our designs in commercial quantities.
Our designs are complex and may prove difficult to manufacture in commercial quantities. We will be relying on our customers and filter fabricators or manufacturers
to build filters from our designs. Our business could fail if they encounter difficulties manufacturing filters in commercial quantities.
We develop complex filter designs, which is inherently challenging. Only a small number of our designed filters are currently in production. We rely on our
customers and filter fabricators or manufacturers to manufacture our designed filters. They will need to manufacture filters in commercial quantities at an acceptable cost, and
we have little or no control over the manufacturing process. They must also operate and maintain sophisticated manufacturing equipment, and equipment failures can have
adverse consequences on production volumes, yields and schedules. They may encounter difficulties in scaling up production, including problems with quality control, raw
material and component supply shortages, low manufacturing yields, increased costs, shortages of qualified personnel and/or difficulties associated with compliance with
regulatory requirements. Any of these problems may adversely affect the timing and amount of our future revenues. Additionally, if our customers and their suppliers
encounter difficulties manufacturing filters from our designs in commercial quantities, our business could fail.
Our business success relies on manufacturers to fabricate our designs, and market acceptance of our designs could be adversely affected if the manufacturers decline to
manufacture our designs.
We are a filter design company and will not commercially manufacture any products. Our business model is to license our designs to customers, who will
manufacture our designs themselves or rely on third party manufacturers, commonly
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referred to as foundries, to fabricate our designs for integration into the customer’s overall product. Many foundries offer potentially competitive filter technology as part of
their standard product line or offer the services of in-house design teams which may consider us competition. In this case, our customers may face resistance by their
foundries to manufacture our designs. We believe the economics can be structured to make it attractive to the foundries to manufacture our designs for our potential customers
but we cannot be assured of the success in convincing them of the value of manufacturing our designs. The reluctance of foundries to manufacture our designs could adversely
affect the market acceptance of our designs.
We develop and test our designs under laboratory conditions using low volume production samples. Once in production, our designs may not perform as well, or prove
unreliable, due to manufacturing variations and operating conditions. This could adversely affect our business.
We develop and test our designs under laboratory conditions using low volume production samples. The transition from product development to commercial
production requires high volume manufacturing which introduces product variations. These variations can adversely affect performance and reliability. Similarly, our designs
may not perform as well or prove sufficiently reliable under actual operating conditions. This could adversely affect our business.
We perform failure analysis and reliability testing of our customers’ parts that use our designs. If our analysis and testing prove to be faulty and our customers rely upon
such information, our reputation could be damaged and our future business and revenues could be adversely affected.
We perform failure analysis and reliability testing of our customers’ parts. In the event our analysis and testing prove to be faulty or insufficient, including due to
failure of our laboratory equipment or human error, and our customers rely upon the results we provide, our reputation may be damaged, and customers may be reluctant to
utilize our services or license our designs. This could harm our ability to attract customers and negatively impact our financial results, and may result in claims against us by
our customers or others.
We have completed and continue to actively work on filter designs with, and expect to derive all of our revenues from, a small number of customers. Our failure to retain
or expand customer relationships will have an adverse effect on our revenues.
We expect to derive our revenues from, a small number of customers. Our failure to retain or expand customer relationships, or any problems we experience in
collecting receivables from them, would harm our financial condition and results of operations. Additionally, our industry is experiencing consolidation among suppliers and
manufacturers of RF front-end components and modules, including activities of module suppliers who vertically integrate by acquiring component suppliers and fabs. This
may lead to fewer customers, reduced demand for our designs and replacement of our designed products by the consolidated company. Any of these possibilities could
adversely affect our business, financial condition and results of operations.
We are a solutions company, providing designs based on our ISN® software platform, intellectual property and design team. We license our designs to manufacturers of
RFFEs, RFFE sub-systems and components for mobile devices. If our designs do not achieve widespread market acceptance among RFFE manufacturers, we will not
be able to generate the revenue necessary to support our business.
Achieving additional acceptance among RFFE manufacturers of our designs will be crucial to our continued success. We have a limited history of marketing designs
and we may fail to generate significant interest in our designs. These and other factors may affect the rate and level of market acceptance, including:
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our royalty fees and the cost of our designed filters relative to other competing designs and
technologies;
perception by RF front-end manufacturers and mobile device
manufacturers;
press and blog coverage, social media coverage, and other publicity and public relations factors which are not within our control;
and
regulatory developments related to manufacturing, marketing and selling our
designs.
If we are unable to achieve or maintain market acceptance, our business would be harmed.
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Our future revenue is inherently unpredictable. As a result, as our revenues increase our operating results are likely to fluctuate from period to period, and we may fail to
meet the expectations of our analysts and investors, which may cause volatility in our stock price and may cause our stock price to decline.
As we generate revenue, we expect our quarterly and annual operating results to fluctuate significantly due to a variety of factors, some of which are outside of our
control. Factors that could cause our quarterly or annual operating results to fluctuate include:
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a downturn in the markets for our customers’
products;
disruptions or delays in the manufacture of our designed filters, our customers’ products, or the products into which our customers’ products are incorporated, or
in the supply of raw materials or product components used to produce such filters or products;
a failure to anticipate changing customer product
requirements;
• market acceptance of our
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designs;
cancellations or postponements of previously placed orders for our customers’
products;
increased financing costs or any inability to obtain necessary
financing;
the impact on our business of any cost reduction
measures;
a loss of key personnel or the shortage of available skilled
workers;
economic conditions in various geographic areas where we or our customers do
business;
the impact of political uncertainties, such as government sequestration and uncertainties surrounding the federal budget, customer spending and demand for
products incorporating our designs;
other conditions affecting the timing of orders of our customers’ products incorporating our
designs;
reductions in the royalty rates for our designs occasioned by a reduction in the prices for our customers’ products, increases in the costs of raw materials used to
produce our customers’ products, or other factors;
effects of competitive pricing pressures, including decreases in average selling prices of RF filters that compete with our filter designs, resulting in reduced
royalty revenue;
obsolescence of our
designs;
research and development expenses incurred with respect to new filter design
introductions;
natural disasters, such as hurricanes, earthquakes, fires, and
floods;
the emergence of new industry
standards;
the loss or gain of significant
customers;
the introduction of new designs and manufacturing
processes;
changes in
technology;
intellectual property
disputes;
customs (including tariffs imposed on products, or components thereof, into which our filter designs are incorporated, or the equipment used in the production of
such products), import/export, and other regulations of the countries in which we do business;
the occurrence of M&A activities;
and
acts of terrorism or violence and international conflicts or crises, including pandemic events and the spread of
disease.
Our limited visibility into future demand for products incorporating our finished filter designs makes it difficult to forecast royalty revenue.
Our customers have had difficulty accurately forecasting their product sales volumes and the timing of new product introductions, which ultimately affects the
royalties we expect to receive for sales of products incorporating our finished filter designs. Our limited visibility into the demand for our customers’ products makes it
difficult for us to accurately forecast royalty revenues, which we expect will continue for the foreseeable future.
The markets in which we compete are cyclical and any future downturn may delay or reduce the demand for our designs and resulting royalty revenue.
Historically, the markets in which we compete have experienced significant downturns, often connected with, or in anticipation of, declines in consumer demand for
end-user products, the maturation of product cycles and declining general economic conditions. These downturns have been characterized by diminished product demand,
production overcapacity, high inventory levels, accelerated erosion of average selling prices, bad debt, inventory charges, restructuring charges, and asset impairment charges.
Any future downturn in the markets in which we compete, or changes in demand for our designs from our customers, could result in a significant delay in our realization of or
reduction in our revenue and may also increase the volatility of the price of our common stock.
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The complexity of our designs could result in unforeseen delays or expenses from latent defects that could reduce the market acceptance for our designs, damage our
reputation and adversely affect our future revenues and operating costs.
We are developing highly complex filters designs using a new approach. We have produced only a limited number of designs that have gone into commercial
production and therefore cannot be certain our methods and testing procedures are adequate to detect latent design defects. If any of our designs contain latent defects, we may
be unable to correct these problems. Consequently, our reputation may be damaged and customers may be reluctant to buy our designs, which could harm our ability to attract
customers and negatively impact our financial results. These problems may also result in claims against us by our customers or others.
Failures in the products or services of our customers, including those resulting from defects or errors, could result in decreased sales and harm our business.
Our success depends in large part on the demand for mobile wireless devices and other products that incorporate our proprietary filter designs. Our customers’
products are inherently complex and may contain defects or errors unrelated to our designs that are detected only when the products are in use. Any defects or errors in the
products of our customers could result in product recalls or the discontinuation of those products, which could have an adverse impact on our operating results due to a delay
or decrease in demand for our designs. Further, security failures, defects or errors in mobile wireless devices, such as the issues with the Galaxy Note 7 in 2016 that caused
Samsung to discontinue that product, have led to increased scrutiny of component suppliers. If our customers do not perceive our designs, or if mobile device manufacturers
do not perceive the products of our customers, to be of high quality, or if we or our customers are unable or unwilling to comply with heightened quality assurance
requirements of mobile device manufacturers, we may be unsuccessful in having our designed filters incorporated into finished products.
Our designs may not gain widespread acceptance unless they offer greater benefits to our customers than offered by competing RF filter designs.
RF front-end manufacturers are primarily concerned with the cost, size and performance of RF filters. Our designs may not gain widespread acceptance unless, as
compared to competing RF filter designs, they are smaller in size, can be fabricated at reduced cost or designed in less time, or improve performance. There can be no
assurance that our SAW or TC-SAW filter designs will cost sufficiently less to manufacture than existing BAW filters, or can be designed in less time, to prove economically
attractive to RF front-end manufacturers or that our filter designs will be smaller in size or perform better.
Our technologies have only limited verification in practice or on a commercial scale.
Our technologies have been subject to only limited testing on a commercial scale. There is no assurance that we will be able to fully develop designs that will
transition into production or license our proposed designs on a timely basis, or at all.
Our development cycles are long and our final designs may no longer remain competitive upon completion.
We operate in an industry which is subject to rapidly evolving technologies. Because our designs are expected to have long development cycles, we must anticipate
changes in the marketplace and the direction of technological innovation and customer demands. To compete successfully, we will need to demonstrate the advantages of our
designs and technologies.
Our industry is subject to intense competition and rapid technological change, which may result in designs, products or new solutions that are superior to our designs
under development. If we are unable to anticipate or keep pace with changes in the marketplace and the direction of technological innovation and customer demands,
our designs may become less useful or obsolete and our operating results will suffer.
We operate in an industry which is subject to intense and increasing competition. Our future success will depend in large part on our ability to establish and maintain
a competitive position in current and future technologies. Rapid technological development may render our designs and technologies obsolete. Many of our competitors have
or may have greater engineering, sales, marketing, operational, corporate and financial resources, and more experience in research and development than we have. We cannot
assure you that our competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than our designs or
that would render our technologies and designs obsolete. We may not have or be able to raise or develop the financial resources, technical expertise, or support capabilities to
compete successfully in the future. Our success will depend in large part on our ability to maintain a competitive position with our technologies.
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If our principal end markets fail to grow or experience declines, our net revenue may not meet our business plan expectations.
Our initial designs are being incorporated into mobile wireless devices. Accordingly, demand for our designs is dependent on the ability of mobile wireless device
manufacturers to successfully sell wireless devices that incorporate our designs. We cannot be certain whether these manufacturers will be able to create or sustain demand
for their wireless devices that contain our designs or how long they will remain competitive in their business, if at all. The success of these mobile wireless device
manufacturers and the demand for their wireless devices can be affected by a number of factors, including, but not limited to:
• market acceptance of their mobile wireless devices that contain our
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designs;
the impact of slowdowns or declines in sales of mobile wireless devices in
general;
their ability to design products with features that meet the evolving tastes and preferences of
consumers;
fluctuations in foreign
currency;
relationships with wireless carriers in particular
markets;
the implementation of, or changes to, mobile wireless device certification standards and
programs;
technological advancements in the functionality and capabilities of mobile wireless
devices;
the imposition of restrictions, tariffs, duties, or regulations by foreign governments on mobile wireless device
manufacturers;
failure to comply with governmental restrictions or
regulations;
cost and availability of components for their products;
and
inventory levels in the sales channels into which mobile wireless device manufacturers sell their
products.
Our intellectual property rights may not be adequate to protect our business
Our success depends significantly on our ability to obtain, maintain and protect our proprietary rights to the technologies used in products incorporating our
technologies. We currently hold patents related to various elements of our technology and we also have patent applications currently pending before the United States Patent
and Trademark Office and other patent offices around the world. No assurances can be given that any patent will be issued on our pending patent applications or any other
application that we may file in the future or that, if such patents are issued, they will be sufficiently broad to adequately protect our technology. In addition, we cannot assure
you that any patents that may be issued to us will not be challenged, invalidated, or circumvented.
Additionally, as we continue to expand our business in China, the application and interpretation of China’s intellectual
property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other
intellectual property rights in China will become more important to our business. Historically, China’s protection of intellectual
property rights has been less stringent and robust compared to other countries such as the United States, and consequently
intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other
countries. Monitoring and preventing unauthorized use is also difficult and the measures we take to protect our intellectual
property rights may not be adequate. Accordingly, infringement of our intellectual property rights poses a serious risk of doing
business in China.
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If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology, products and services could be harmed
significantly.
In addition to seeking patents for some of our technologies, we also rely on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties
who have access to them, such as our employees, consultants, collaborators, advisors, independent contractors and other third parties. We also enter into confidentiality, non-
competition, non-solicitation, and invention assignment agreements with our employees and consultants that obligate them to assign to us any inventions developed in the
course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets or
that the agreements we have executed will provide adequate protection. Additionally, we also seek to preserve the integrity and confidentiality of our technologies and trade
secrets by maintaining physical and electronic security of our premises and information technology systems. While we have confidence in these individuals, organizations and
systems, agreements or security measures may be breached, and we may not have adequate remedies for such breaches. Furthermore, competitors may otherwise gain access
to our trade secrets or independently develop substantially equivalent information and techniques. As a result, we may be forced to bring claims against third parties, or
defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is difficult and we do not
know whether the procedures that we have followed to prevent such disclosure are or will be adequate. Enforcing a claim that a party illegally disclosed or misappropriated a
trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States may be less willing or
unwilling to protect trade secrets. If any of the technology or information that we protect as trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to, or
independently developed by, a competitor, our competitive position would be harmed.
Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our intellectual property without compensating us, thereby eroding
our competitive advantages and harming our business.
Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop under the intellectual property laws of the United States,
so that we can prevent others from using our inventions and proprietary information. If we fail to protect our intellectual property rights adequately, our competitors might
gain access to our technology, and our business might be adversely affected. We rely on trademark, copyright, mask works, trade secret and patent laws, confidentiality
procedures and contractual provisions to protect our proprietary methods and technologies. We currently hold patents and have pending patent applications related to our
technology solutions. Valid patents may not be issued from our pending applications, and the claims allowed on any issued patents may not be sufficiently broad to protect
our technology or offerings and services. Any patents we currently hold or that may be issued to us in the future may be challenged, invalidated or circumvented, and any
rights granted under these patents may not actually provide us with adequate defensive protection or competitive advantages. Additionally, the process of obtaining patent
protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Policing unauthorized use of our technology is difficult. Additional uncertainty may result from changes to intellectual property legislation enacted in the United
States, including the America Invents Act, and other countries and from interpretations of the intellectual property laws of the United States and other countries by applicable
courts and agencies. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those of the United States, and mechanisms for
enforcement of our proprietary rights in such countries may be inadequate. From time to time, legal action by us may be necessary to enforce our intellectual property rights,
to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement. Such litigation could result in
substantial costs and the diversion of limited resources and could negatively affect our business, operating results and financial condition. If we are unable to protect our
proprietary rights (including aspects of our technology platform) we may find ourselves at a competitive disadvantage to others who have not incurred the same level of
expense, time and effort to create and protect their intellectual property.
Furthermore, we acquired some of the patents we currently hold from Superconductor Technologies, Inc., or STI. Although we believe we have obtained valid
assignments of patent rights from STI and STI has obtained valid assignments of patent rights from all inventors, if an inventor did not adequately assign his or her patent
right to STI or STI did not adequately assign its patent rights to us, a third party could obtain a license to the patent from such inventor or STI. This could preclude us from
enforcing the patent against such third party. In addition, because we acquired our patents from STI, some of the inventors of our patents are not our employees and they are
not obligated to assist us in prosecuting, maintaining, defending
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and enforcing such patents. Without the cooperation of the inventors of our patents, it may be difficult for us to prevail in any legal action involving the intellectual property
rights under our patents. Additionally, the inventors may have information, trade secrets and know-how learned while at STI that is not our property and if disclosed could
provide competitors with insights that allow them to invent around our patented technology.
Accordingly, despite our efforts, we may be unable to obtain adequate patent protection, or to prevent third parties from infringing upon, misappropriating or
inventing around our intellectual property.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit
our ability to use certain technologies.
Third parties may assert claims of infringement of intellectual property rights in proprietary technology against us for which we may be liable or have an
indemnification obligation. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and
could distract our management from our business.
Although third parties may offer a license to their technology, the terms of any offered license may not be acceptable and the failure to obtain a license or the costs
associated with any license could cause our business, results of operations or financial condition to be materially and adversely affected. In addition, some licenses may be
non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Alternatively, we may be required to develop non-infringing technology,
which could require significant effort and expense and ultimately may not be successful. Furthermore, a successful claimant could secure a judgment or we may agree to a
settlement that prevents us from licensing certain designs or performing certain services or that requires us to pay substantial damages, including treble damages if we are
found to have willfully infringed the claimant’s patents or copyrights, royalties or other fees. Any of these events could seriously harm our business, operating results and
financial condition.
We may be unsuccessful in monetizing our intellectual property portfolio.
We have dedicated substantial resources to the development and protection of technology innovations essential to our business, and we expect these activities to
continue for the foreseeable future. We also intend to aggressively pursue monetization avenues for our intellectual property portfolio, potentially including licensing, royalty
or other revenue-producing arrangements. However, our revenues are currently generated in part by licensing our technology and we may never be successful in generating a
revenue stream from our intellectual property, in which case our investments of time, capital and other resources into our intellectual property portfolio may not provide
adequate, or any, returns.
Our customer agreements include indemnity provisions and may expose us to substantial liability for intellectual property infringement and other losses.
Our customer agreements include indemnification provisions under which we agree to indemnify third parties for losses suffered or incurred as a result of claims of
intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our designs, services, or other contractual
obligations. The term of these indemnity provisions generally survives termination or expiration of the applicable agreement. Large indemnity payments could harm our
business, operating results and financial condition.
We use highly specialized proprietary software as well as commercially available software pursuant to annual licenses, and the failure of this software or inability to
renew any of these licenses could adversely affect our ability to design new RF filters and thus our potential for generating revenues.
We have developed and use highly specialized proprietary computer software in our design process. The failure of any of this software to perform as expected could
adversely affect our ability to produce new RF filter designs and thus our potential for generating revenues. In addition to our proprietary software, we also use highly
specialized but commercially available computer software in our design process. We do not own this software and use it under the terms of licenses. These licenses are made
available to us at prices and on terms generally available to any customer. If we were unable to renew any of these software licenses, we would have to locate or develop
alternative software. We cannot assure you that suitable alternative software would be available on commercially reasonable terms or could be developed by us at reasonable
cost. The loss of any one of these software licenses could adversely affect our ability to produce new RF filter designs and thus our potential for generating revenues.
Our limited operating history makes it difficult to evaluate our business and prospects and may increase the risks associated with your investment.
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We have only a limited operating history upon which our business and future prospects may be evaluated. We have encountered and will continue to encounter risks
and difficulties frequently experienced by companies in rapidly developing and changing industries, including challenges related to recruiting, integrating and retaining
qualified employees; making effective use of our limited resources; achieving market acceptance of our existing and future solutions; competing against companies with
greater financial and technical resources; and developing new solutions. Our current operational infrastructure may require changes for us to scale our business efficiently with
additional technical personnel and effectively to keep pace with demand for our solutions, and achieve long-term profitability. If we fail to implement these changes on a
timely basis or are unable to implement them effectively, our business may suffer. We cannot assure you that we will be successful in addressing these and other challenges
we may face in the future. As a company in a rapidly evolving industry, our business prospects depend in large part on our ability to:
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build a reputation for a superior solution and create trust and long-term relationships with our
customers;
distinguish ourselves from competitors in our
industry;
develop and offer competitive technologies that meet our customers’ needs as they
change;
respond to evolving industry standards and government regulations that impact our
business;
expand our business internationally;
and
attract, hire, integrate and retain qualified and motivated
employees.
If we are unable to meet one or more of these objectives or otherwise adequately address the risks and difficulties that we face, our business may suffer, our revenue
may decline and we may not be able to achieve growth or long-term profitability.
Our management team and financial reporting group is limited in size and experience which may impact the implementation and administration of financial and
reporting controls and procedures.
Although our management team makes certain representations about the financial and reporting controls and procedures in our SEC filings, our management team
has limited experience in implementing and maintaining our operations and our financial processes. Financial and reporting controls and procedures implemented and
maintained by our management team, now or in the future, may not be adequate, with the result that there may be substantial deficiencies that will need remediation in the
future. If there are inadequate controls and procedures, our financial statements and our reporting may be inaccurate or untimely.
The loss of the services of our key management and personnel or the failure to attract additional key personnel could adversely affect our ability to operate our business.
A loss of one or more of our current officers or key employees could severely and negatively impact our operations. We have no present intention of obtaining key-
man life insurance on any of our executive officers or management. Additionally, competition for highly skilled technical, managerial and other personnel is intense. As our
business develops, we might not be able to attract, hire, train, retain and motivate the highly skilled managers and employees we need to be successful. If we fail to attract
and retain the necessary technical and managerial personnel, our business may not grow, may suffer and might fail.
We may have difficulty managing growth in our business.
Because of our small size, growth in accordance with our business plan, if achieved, will place a significant strain on our financial, technical, operational and
management resources. As we expand our activities, there will be additional demands on these resources. The failure to continue to upgrade our technical, administrative,
operating and financial control systems or the occurrence of unexpected expansion difficulties, including issues relating to our research and development activities and
retention of experienced scientists, managers and engineers, could have a material adverse effect on our business, financial condition and results of operations and our ability
to timely execute our business plan.
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Our worldwide operations are subject to political, legal and economic risks and catastrophic events, such as natural disasters, war, acts of terrorism and epidemics that
could disrupt the business of our customers or harm our facilities, which could have a material adverse effect on us.
Our customers are located around the world, including in the United States and Asia, and we expect that international sales will comprise a significant portion of total
sales in the future. In addition, products utilizing our designs will be produced, assembled and tested at third-party manufacturing facilities located primarily in Asia.
Consequently, we are subject to political, legal and economic risks associated with operations in foreign countries, including, without limitation:
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expropriation;
changes in a specific country’s or region’s political or economic
conditions;
changes in tax laws, trade protection measures and import or export licensing
requirements;
difficulties in protecting our intellectual
property;
difficulties in managing staffing and exposure to different employment practices and labor
laws;
changes in foreign currency exchange
rates;
restrictions on transfers of funds and other assets of our subsidiaries between
jurisdictions;
changes in freight and interest
rates;
disruption in air transportation between the United States and overseas
facilities;
loss or modification of exemptions for taxes and tariffs;
and
compliance with U.S. laws and regulations related to international operations, including export control and economic sanctions laws and regulations and the
Foreign Corrupt Practices Act.
In addition, our worldwide operations (or those of our business partners) could be subject to natural disasters such as earthquakes, tsunamis, flooding, typhoons and
volcanic eruptions, war, acts of terrorism, pandemic events and the spread of disease (including the recent outbreak of the coronavirus commonly referred to as “COVID-19”),
all of which are outside of our control and could disrupt manufacturing or other operations. For example, our Goleta and Burlingame operations are located near major
earthquake fault lines in California. Any conflict or uncertainty in the countries in which we operate, including public health issues, safety issues, natural disasters, disruptions
of service from utilities, nuclear power plant accidents or general economic or political factors, could have a material adverse effect on our business. Any of the above risks,
should they occur, could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses
for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying
with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.
Our business could be adversely affected by the effects of widespread public health epidemics that are beyond our control.
Public health epidemics or widespread outbreaks of contagious diseases could adversely impact our business. Any outbreak of contagious diseases, and other
adverse public health developments, such as the recent novel strain of coronavirus (“COVID-19”), initially limited to a region in China and now affecting the global
community, could impact our operations depending on future developments, which are highly uncertain, largely beyond our control and cannot be predicted with certainty.
These uncertain factors include the duration of the outbreak, new information which may emerge concerning the severity of the disease and the actions to contain or treat its
impact, could adversely impact our operations, including among others, production of filters incorporating our designs in Asia, employee mobility and productiveness,
temporary closure of third party facilities, and other services provided by third party service providers, any of which could have an adverse impact on our business and our
financial results.
Our ability to use our net operating loss carryforwards (“NOLs”) and other tax attributes to offset future taxable income may be limited.
We have significant NOLs and R&D tax credits available to offset our future United States federal and state taxable income. Under Sections 382 and 383 of Internal
Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax
attributes, such as R&D tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our
ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. If we experience ownership
changes as a result of future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net
taxable income that we earn. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition and operating
results. In addition, California and certain states have suspended use of NOLs for certain taxable years and other states are considering similar measures. As a result, we may
incur higher state income tax expense in the future.
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Depending on our future tax position, continued suspension of our ability to use NOLs in states in which we are subject to income tax could have an adverse impact on our
operating results and financial condition.
Changes in U.S. tax laws and regulations, including the Tax Cuts and Jobs Act of 2017, may have a material adverse effect on our business, cash flow, operating results,
and financial condition.
Changes in tax laws and regulations, or changes in the interpretation of tax laws and regulations by federal or state authorities, may have a material adverse effect our
business, cash flows, operating results or financial condition. The federal government recently enacted the Tax Cuts and Jobs Act of 2017, which contains many significant
changes to federal income tax laws, including a reduction to the U.S. Corporate income tax rate. The reduction in the tax rate, for 2018 and forward, impacted our deferred tax
assets as of December 31, 2017 by $6.8 million, which would have been recognized as tax expense if we did not have a full valuation allowance recorded against our deferred
tax assets. Changes in corporate tax rates and the deductibility of expenses contained in the 2017 Tax Act or other tax reform legislation could have a material impact on the
future value of our deferred tax assets, could result in significant one-time costs or expenses in the current or future taxable years, and could increase our future U.S. tax
expense. In addition, foreign governments or U.S. states may enact tax laws in response to the 2017 Tax Act that could result in further changes to taxation applicable to us
and materially affect our operating results and financial condition.
Security breaches and improper access to or disclosure of our proprietary information, or other hacking attacks on our systems, could adversely affect our business.
Our industry is prone to cyber-attacks, with third parties seeking unauthorized access to our proprietary information and technology. Computer malware, viruses, and
hacking and phishing attacks by third parties have become more prevalent in our industry and may occur on our systems in the future. We believe such attempts are increasing
in number and in technical sophistication, and in some instances we may be unable to anticipate these techniques or to implement adequate preventative measures.
Additionally, we may be unaware of an incident or its magnitude and effects. Although we have developed systems and processes that are designed to protect our proprietary
information and to prevent other cybersecurity breaches, we cannot guarantee that such measures will provide absolute security.
Any failure to prevent or mitigate security breaches and improper access to or disclosure of our proprietary information could result in the loss or misuse of such
proprietary information, which could harm our business and diminish our competitive position. Such attacks may also create system disruptions or cause shutdowns. Publicity
about vulnerabilities and attempted or successful incursions could damage our reputation with customers and reduce demand for our products and services.
Affected private parties or government authorities could initiate legal or regulatory actions against us in connection with any security breaches, which could cause us
to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices. Any of these events could have a material and
adverse effect on our business, reputation, and operating results.
If we choose to acquire new businesses, products or technologies, we may experience difficulty in the identification or integration of any such acquisition, and our
business may suffer.
Our commercial success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive
pressures and technologies. Accordingly, we may in the future pursue the acquisition of complementary businesses, products or technologies instead of developing them
ourselves. We do not know if we will be able to identify or complete any future acquisitions, or whether we will be able to successfully integrate any acquired business,
product or technology or retain key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing
business and distract our management. Moreover, we may fail to realize the anticipated benefits of any acquisition. If we are unable to integrate any acquired businesses,
products or technologies effectively, our business will suffer. In addition, any amortization or charges resulting from acquisitions could adversely affect our operating results.
Risks Relating to the Securities Markets and Ownership of Our Common Stock
The price of our common stock may be volatile and the value of your investment could decline
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Technology stocks have historically experienced high levels of volatility. The trading price of our common stock may fluctuate substantially, depending on many
factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment
in our common stock. Factors that could cause fluctuations in the trading price of our common stock include, but are not limited to, the following:
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the progress, completion or failure of efforts to design our commercial
products;
a customer decision regarding incorporation of our designs into a commercial
product;
the loss of any customer
relationship;
the addition of a new customer
relationship;
• mergers and acquisitions involving us, our customers or our
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competitors;
price and volume fluctuations in the overall stock market from time to
time;
significant volatility in the market price and trading volume of technology companies in
general;
fluctuations in the trading volume of our shares or the size of our public
float;
actual or anticipated changes or fluctuations in our results of
operations;
whether our results of operations meet the expectations of securities analysts or
investors;
actual or anticipated changes in the expectations of investors or securities
analysts;
litigation involving us, our industry, or
both;
regulatory developments in the United States, foreign countries, or
both;
general economic conditions and
trends;
• major catastrophic
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events;
lockup releases, sales of large blocks of our common
stock;
departures of key employees;
or
an adverse impact on the company from any of the other risks cited
herein.
In addition, if the market for technology stocks or the stock market in general, experience a loss of investor confidence, the trading price of our common stock could
decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that
affect other companies in our industry even if these events do not directly affect us. Securities class action litigation has often been instituted against companies following
periods of volatility in the overall market and in the market price of a company’s securities. Two putative class action lawsuits were filed in March 2015 against the Company
and certain members of the Board of Directors and executives and subsequently settled. We may be the target of securities-related litigation in the future. Such litigation could
divert our management’s attention and resources, result in substantial costs, and have an adverse effect on our business, results of operations and financial condition.
Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our directors, executive officers and each of our stockholders who own greater than 10% of our outstanding common stock, in the aggregate, beneficially own
approximately 22% of the outstanding shares of our common stock as of February 5, 2020. As a result, these stockholders will be able to influence or control matters
requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have
interests that differ from yours and may vote in a manner that is adverse to your interests. This concentration of ownership may have the effect of deterring, delaying or
preventing a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our
company and might ultimately affect the market price of our common stock.
The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board
members.
As a public company, we are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-
Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Stock Market and other applicable securities rules
and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming or
costly and increased demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to
our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if
required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight
may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Although we
have already hired additional employees to
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comply with these requirements, we may need to hire even more employees or retain professional service providers in the future, which will increase our costs and expenses.
In addition, we expect that these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be
required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified
members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
We are required to evaluate and have audited our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results
from such evaluation and audit could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting
and have our internal control over financial reporting audited by our independent registered public accounting firm. Management’s report contains, among other matters, an
assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by
management. If we are unable to assert that our internal control over financial reporting is effective, or if our accounting firm issues an adverse report on how our controls are
documented, designed or operating, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our
stock price.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall
below the expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, as provided in Item 7--Management’s Discussion and Analysis of Financial Condition and Results
of Operations, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily
apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which
could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. Significant assumptions and
estimates used in preparing our consolidated financial statements include those related to the fair values of equity instruments, other financial instruments and income taxes.
Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the
trading value of our securities.
Stockholders may, from time to time, engage in proxy solicitations or advance stockholder proposals, or otherwise
attempt to effect changes and assert influence on our board of directors and management. While we strive to maintain
constructive, ongoing communications with all of our stockholders, and welcome their views and opinions with the goal of
enhancing value for all stockholders, activist campaigns that contest or conflict with our strategic direction or seek changes in
the composition of our board of directors could have an adverse effect on our operating results and financial condition. A proxy
contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and
associated costs and require significant time and attention by our board of directors and management, diverting their attention
from the pursuit of our business strategy. Any perceived uncertainties as to our future direction and control, our ability to
execute on our strategy, or changes to the composition of our board of directors or senior management team arising from a
proxy contest could lead to the perception of a change in the direction of our business or instability which may be exploited by
our competitors, result in the loss of potential business opportunities, and make it more difficult to pursue our strategic
initiatives or attract and retain qualified personnel and business partners, any of which could adversely affect our business and
operating results. If individuals are ultimately elected to our Board with a specific agenda, it may adversely affect our ability to
effectively implement our business strategy and create additional value for our stockholders. We may choose to initiate, or may
become subject to, litigation as a result of the proxy contest or matters arising from the proxy contest, which would serve as a
further distraction to our board of directors and management and would require us to incur significant additional costs. In
addition, actions such as those described above could cause significant fluctuations in our stock price based upon temporary or
speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our
business.
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A securities class action lawsuit and a shareholder derivative lawsuit were filed against us in 2015 and subsequently settled.
Legal proceedings of this nature could have a material adverse effect on our business, results of operations and financial
condition.
In 2015, a putative class action lawsuit and shareholder derivative lawsuit were filed against us and certain of our
directors and officers, which lawsuits were settled in November 2017 and August 2018, respectively. Lawsuits of this nature
may divert financial and management resources that would otherwise be used to benefit our operations. Although we denied the
material allegations in the lawsuits and defended ourselves vigorously, defending the lawsuits resulted in substantial costs. In
addition, we may be the target of securities-related litigation in the future. Such litigation could divert our management’s
attention and resources, result in substantial costs, and have an adverse effect on our business, results of operations and financial condition. We maintain director and officer
insurance that we regard as reasonably adequate to protect us from potential claims; however, we cannot assure you that it will. Further, if we are subject to future litigation,
the costs of insurance may increase and the availability of coverage may decrease. As a result, we may not be able to maintain our current levels of insurance at a reasonable
cost, or at all, which might make it more difficult to attract qualified candidates to serve as executive officers or directors of the Company.
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our
share price and trading volume could decline.
The trading market for our common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our
business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our business
prospects, our share price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose
visibility in the financial markets, which could cause our share price or trading volume to decline.
We do not intend to pay dividends for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the
price of our common stock.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and
we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our
common stock increases.
Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our
company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take
other corporate actions, including effecting changes in our management. These provisions include:
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•
•
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting
rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or
removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, the chief executive officer, the president (in
the absence of a chief executive officer) or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a
proposal or to take action, including the removal of directors;
the requirement for the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting
together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our
amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
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•
•
the ability of our board of directors, by majority vote, to amend our amended and restated bylaws, which may allow our board of directors to take additional
actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our amended and restated bylaws to facilitate an unsolicited takeover
attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a
stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors
or otherwise attempting to obtain control of us.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in
particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.
Risks Related to Government Regulation
Our failure to comply with U.S. laws and regulations relating to the export and import of goods, technology, and software could subject us to penalties and other
sanctions and restrict our ability to license and develop our filter designs.
We are obligated by law to comply with all U.S. laws and regulations governing the export and import of goods, technology, and services, including the International
Traffic in Arms Regulations, or ITAR, the Export Administration Regulations, or EAR, regulations administered by the Department of Treasury’s Office of Foreign Assets
Control, and regulations administered by the Bureau of Alcohol Tobacco Firearms and Explosives governing the importation of items on the U.S. Munitions Import List.
Pursuant to these regulations, we are responsible for determining the proper licensing jurisdiction and export classification of our filter designs, and obtaining all necessary
licenses or other approvals, if required, for exports and imports of technical data, and software, or for the provision of technical assistance or other defense services to or on
behalf of foreign persons. We are also required to obtain export licenses, if required, before employing or otherwise utilizing foreign persons in the performance of our
contracts if the foreign person will have access to export-controlled technical data or software. The violation of any of the applicable laws and regulations could subject us to
administrative, civil, and criminal penalties.
These regulations could restrict our ability to license existing filter designs and develop new designs. For example, as a result of ITAR requirements, we are unable
to supply certain products to China satellite companies or end users, which comprise a significant part of the overall satellite market. Changes in our designs or changes in
export and import regulations may create delays in the introduction of our designs in international markets, prevent our customers with international operations from
deploying products incorporating our designs throughout their global systems or, in some cases, prevent the export or import of product including our designs to certain
countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the
countries, persons, or technologies targeted by such regulations, could result in decreased use of our designs by, or our ability to export or license our designs to, existing or
potential customers with international operations and decreased revenue. Additionally, failure to comply with these laws could result in sanctions by the U.S. government,
including substantial monetary penalties, denial of export privileges, and debarment from government contracts.
Changes in China’s economic, political or social conditions or government policies, including rising tensions between China and the United States, could have a material
adverse effect on our business and results of operations.
Our business, prospects, financial condition and results of operations may be significantly affected by the political, economic and social climate in China, including
without limitation the rising tensions in the relationships between China, surrounding Asian countries, and the United States. As a result, our customers may incur increases
in costs due to changes in tariffs, import or export restrictions (or other trade barriers), or unexpected changes in regulatory requirements, which could harm our business.
Given the relatively fluid regulatory environment in China, there could be additional tax or other regulatory changes in the future. Such actions in the future, as well as other
changes in Chinese laws and regulations, including actions in furtherance of China’s stated policy of reducing its dependence on foreign semiconductor manufacturers, could
increase the cost of doing business in China, foster the emergence of Chinese-based competitors, decrease the demand for our customers’ products in China, or reduce the
supply of critical materials for our customers’ products, which could have a material adverse effect on our business and results of operations.
If we fail to comply with anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, we could be subject to civil and/or criminal penalties.
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As a result of our international operations, we may be subject to anti-bribery laws, including the FCPA, which prohibits companies from making improper payments
to foreign officials for the purpose of obtaining or keeping business. If we fail to comply with these laws, the U.S. Department of Justice, the SEC, or other U.S. or foreign
governmental authorities could seek civil and/or criminal sanctions, including monetary fines and penalties against us or our employees, as well as additional changes to our
business practices and compliance programs, which could have a material adverse effect on our business, results of operations, or financial condition.
Developments stemming from changes in Government administrations, both foreign and domestic, including the imposition of tariffs and export restrictions and other
changes in government trade policies, could limit our ability to license our designs, which could adversely affect our business.
Changes in Government administration could result in changes to political, regulatory and economic laws, policies and conditions that could severely and negatively
impact our business. For example, the Trump administration negotiated a new North American trade pact to replace the North American Free Trade Agreement, withdrew the
United States from the Trans-Pacific Partnership (TPP), and has imposed tariffs on goods imported into the United States, including from China, which has imposed
retaliatory tariffs affecting certain products manufactured in the United States. Our customers are located around the world, and we expect that international sales will
comprise a substantial portion of total sales in the future. In addition, we expect that products utilizing our designs will be produced, assembled and tested at third-party
manufacturing facilities located primarily in Asia. Changes in U.S. political, regulatory and economic conditions or laws and policies governing U.S. tax laws, foreign trade,
manufacturing, and development and investment in the countries where we or our customers operate could adversely affect our operating results and our business. For
example, imposition of tariffs on our customers’ products that are imported from China to the United States could harm sales of such products, which would harm our
business. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and China or other countries, what
products may be subject to such actions, or what actions may be taken by the other countries in retaliation
Changes in current laws or regulations or the imposition of new laws or regulations could impede the license of our designs or otherwise harm our business.
Wireless networks can only operate in the frequency bands, or spectrum, allowed by regulators and in accordance with rules governing how the spectrum can be
used. The Federal Communications Commission, or the FCC, in the United States, as well as regulators in foreign countries, have broad jurisdiction over the allocation of
frequency bands for wireless networks. We therefore will rely on the FCC and international regulators to provide sufficient spectrum and usage rules. For example, countries
such as China, Japan or Korea heavily regulate all aspects of their wireless communication industries, and may restrict spectrum allocation or usage. If this were to occur, it
would make it difficult for us to license our designs for use in mobile devices in that region.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We maintain our principal office, totaling approximately 27,000 square feet of office and laboratory space, in Goleta, California under a lease that expires in August
2024 and provides us with one option to renew for an additional five years. We lease an additional 5,250 square feet of office space in Burlingame, California under a lease
that expires in January 2022 and provides us with an option for an additional two years. This facility is used by members of our technical team resident in the San Francisco
Bay area. We also lease space for our domestic and international operations in Austin, Texas, Neuchatel, Switzerland and Anyang, South Korea. We believe our current
facilities are sufficient for our current operations, and that suitable additional space will be available to accommodate our anticipated growth.
ITEM 3. 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information for Common Stock
Our common stock is listed on The Nasdaq Capital Market under the symbol ''RESN".
Holders of Record
As of December 31, 2019, we had 37 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and
includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the
operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination to declare dividends
will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and
other factors that our board of directors may deem relevant.
Recent Sales of Unregistered Securities
On August 8, 2019, we issued restricted stock units, or LHA RSUs, for an aggregate of 21,000 shares of our common stock to key principals of LHA Investor
Relations, or LHA, as partial consideration for investor relations advisory services to be rendered by LHA. Of the shares underlying the LHA RSUs, 5,250 shares vested on
December 1, 2019 and 5,250 shares will vest on each December 1, 2020, 2021 and 2022 so long as LHA continues to provide investor relations advisory services to us. The
issuance of the LHA RSUs was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) thereof as a transaction not involving a
public offering. Each of the recipients of the LHA RSUs represented that such recipient was an "accredited investor", and that such recipient was acquiring the securities for
investment only and not with a view to or for sale in connection with any distribution thereof. Each of the recipients of the LHA RSUs had adequate access to information
about Resonant, and the issuance of the securities was made without any general solicitation or advertising.
Use of Proceeds
Not applicable.
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ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements
and the related notes to the consolidated financial statements included later in this Annual Report on Form 10-K. In addition to historical financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the
timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
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.
Results of Operations
Comparison of the Years Ended December 31, 2019 and 2018
Revenues. Revenues consist primarily 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. Revenues also include royalties from shipments of our licensed designs. For the years ended December 31, 2019 and 2018, we recognized $735,000
and $524,000, respectively, of revenue. The increase was primarily a result of the collaboration and license agreement we signed in September 2019 with a major Tier 1 RF
filter manufacturer. We have recorded $1.7 million of deferred revenue as of December 31, 2019, which we expect to recognize over the next year. Additionally, we expect to
continue to recognize royalty revenue from our license agreements.
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 and consultants, including stock-based
compensation, and to a lesser extent development related costs for facilities, 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.
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Research and development expenses increased $4.6 million from $14.3 million in 2018 to $18.9 million in 2019. The increase was primarily related to higher
compensation expense of $2.4 million associated with increased headcount, higher development costs of $1.2 million related to our ISN® software development, XBAR®
technology development and expanded activity on our filter designs under development, and $640,000 of increased occupancy expenses. During the year ended December 31,
2019, we expanded our research and development employees from 46 at the beginning of the year to 58 at the end of the year. We anticipate that our research and
development expenses may continue to increase as a result of anticipated growth.
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 and consultants, including stock-based compensation. They also include expenses for facilities, travel expenses, telecommunications, investor relations,
insurance and professional fees.
Sales, marketing and administration expenses increased $494,000, from $11.5 million in 2018 to $12.0 million in 2019. The increases primarily related to
compensation expense associated with headcount changes and consultants, as well as additional public company costs as we became subject to section 404(b) of the Sarbanes-
Oxley Act, which required us to obtain auditor attestation over our system of internal controls for financial reporting. During the year ended December 31, 2019, our sales,
marketing and administration employees decreased from 21 at the beginning of the year to 19 at the end of the year. We anticipate that our sales, marketing and administration
expenses may continue to increase as a result of anticipated growth.
Interest and Investment Income. Interest and investment income decreased by $228,000 from $481,000 in 2018 to $253,000 in 2019 primarily due to decreased cash
and investment balances. 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 addition to minimum taxes in the states where we conduct business, we
are also responsible for income taxes in Switzerland related to the earnings of our foreign subsidiary, GVR. The provision for (benefit from) income taxes primarily represents
the net change in deferred income taxes of GVR.
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 December 31, 2019, we have raised aggregate gross proceeds of $97.1 million through the use of loans, convertible debt and equity through an IPO, private
placement financings and secondary offerings of our common stock.
We had current assets of $11.1 million and current liabilities of $6.3 million as of December 31, 2019, resulting in working capital of $4.8 million. This compares to
working capital of $18.5 million as of December 31, 2018. The change in working capital is primarily the result of proceeds from the issuance of equity offset by the use of
cash in our normal business operations.
As of December 31, 2019, our accumulated deficit totaled $122.5 million. During 2019 our net loss totaled $29.9 million and we used $21.9 million of cash and
investments for operating activities, the purchase of property and equipment and expenditures for patents. To date we have not generated significant revenues to enable
profitability. We expect to continue to incur significant losses. These factors raise substantial doubt regarding our ability to continue as a going concern. At December 31,
2019 we had cash and cash equivalents of $10.7 million. In February 2020 we completed a common stock equity offering that netted $26.3 million. In the absence of a
significant revenue increase these cash resources will provide sufficient funding into early 2021. We are subject to the risks and uncertainties associated with a new business.
Our continuance as a going concern is dependent on future profitability. We are actively pursuing expanding our technology portfolio, increasing our revenue opportunities by
completing deliverables under current contracts and entering into new prepaid and paid up royalty arrangements, and efficiently managing operations and exploring cost
saving opportunities. We may not be successful in these efforts. We may need to seek to raise additional capital from the sale of equity securities or incurrence of
indebtedness. There can be no assurance that additional financing will be available to us on acceptable terms, or at all in which case 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. The accompanying
consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of this uncertainty.
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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. As of February
14, 2020, we have raised a total of $28.8 million of gross proceeds from the sale of 19,166,667 shares of our common stock, leaving approximately $21.2 million of securities
available for issuance pursuant to the Form S-3. The Form S-3 will expire in November 2021.
Cash Flow Analysis
Operating activities used cash of $20.7 million in 2019 and $18.1 million in 2018. The increase is primarily the result of our increased loss.
Investing activities provided cash of $15.6 million in 2019 and used cash of $18.2 million in 2018. In 2019, the cash provided was a result of the redemptions of
investments held to maturity in excess of purchases 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 purchase of investments held to maturity in excess of redemptions 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 2019 and $21.3 million in 2018. The cash provided in 2019 was the result of net proceeds from the sale of
equity securities in our private placement financing completed in September 2019 and net proceeds from the exercises of warrants for cash. The cash provided in 2018 was the
result of 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, partially offset by cash used for the repurchase of common stock under an authorized stock repurchase program.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements.
Contractual Obligations and Known Future Cash Requirements
Indemnification Agreements
In the ordinary course of business, we may enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors,
business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us
or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain officers and
employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or
employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material
effect on our consolidated balance sheets, consolidated statements of comprehensive loss, consolidated statements of stockholders’ equity or consolidated statements of cash
flows.
Purchasing Commitments
We have non-cancelable purchasing commitments that we incur in the ordinary course of business. The purchase commitments covered by these agreements are for
less than one year and aggregate to $824,000 as December 31, 2019.
Operating Leases
We lease various office facilities, including our corporate headquarters in Goleta, California, as well as our offices in Burlingame, California, Austin, Texas and
Anyang, South Korea under operating lease agreements. The terms of the lease agreements provide for rental payments on a graduated basis. We recognize rent expense on a
straight-line basis over the lease periods.
Commitments
As of December 31, 2019, our principal commitments consisted of obligations under our purchasing commitments and the operating leases for our offices. The
following table summarizes our future minimum payments under these arrangements as of December 31, 2019:
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Contractual Obligations
Purchasing commitments
Operating lease commitments
Critical Accounting Policies and Estimates
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Payments Due by Period
$
$
824,000 $
2,962,000 $
824,000 $
726,000 $
— $
1,305,000 $
— $
931,000 $
—
—
Our critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated financial statements included in Item
8, Financial Statements and Supplemental Data, of this Annual Report on Form 10-K. Those consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America. Critical accounting estimates are those that we believe are most important to the portrayal of our financial
condition and results of operations. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Our estimates are evaluated on an ongoing basis and are drawn from historical operations, current trends, future business plans and
other factors that management believes are relevant at the time our consolidated financial statements are prepared. Actual results may differ from our estimates. Management
believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated financial statements.
Investments—Securities held-to-maturity: Investments are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity.
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
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). We continually evaluate investments and record impairment expense if needed.
Revenue Recognition—As of January 1, 2018, we recognize revenue in accordance with 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. Under the new guidance we are required to use estimates to determine the transaction price in the contract as well as the time over
which we will satisfy the performance obligations. The determination of the transaction price may include estimates of amounts we expect to receive, including milestones that
we may achieve which would result in additional payments upon achievement. These estimates are used for recognition of our revenue primarily related to upfront non-
refundable fees received in connection with filter design projects with customers. Our performance obligation is to design a licensable filter in accordance with customer
specifications. We recognize revenue over the course of the estimated design development phase based on efforts expended to date. At the end of each reporting period, we
reassess our measure of progress and adjust revenue when appropriate.
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 and recognize the expense over the vesting period.
We account for restricted stock units 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. The fair value of non-employee restricted stock units awarded are remeasured as the awards vest, and the resulting increase or
decrease in fair value, if any, is recognized as an increase or decrease to compensation expense in the period the related services are rendered.
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 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
consolidated financial statements, we are required to estimate our income tax expense in each of the jurisdictions in which we operate. We also assess
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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.
Recently Issued and Adopted Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2 of the consolidated financial statements included in Item 8, Financial Statements and Supplemental Data,
of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm for the years ended December 31, 2019 and December 31, 2018
Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and December 31, 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and December 31, 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and December 31, 2018
Notes to Consolidated Financial Statements
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40
42
43
44
45
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of Resonant Inc.
Goleta, California
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Resonant Inc. (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of
comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the "financial statements"). We
also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework:
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and
the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework: (2013) issued by COSO.
Explanatory Paragraph - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has not generated significant revenues since inception to enable profitability and expects to continue to incur significant
losses. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also
described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable
40
Table of Contents
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
/s/ Crowe LLP
We have served as the Company's auditor since 2015.
Sherman Oaks, California
March 12, 2020
41
Table of Contents
RESONANT INC.
Consolidated Balance Sheets
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Investments held-to-maturity
Accounts receivable
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT
Property and equipment
Less: Accumulated depreciation and amortization
PROPERTY AND EQUIPMENT, NET
NONCURRENT ASSETS
Domain name and other intangibles, net
Patents, net
Restricted cash
Goodwill
Operating lease right-of-use assets
Other assets
TOTAL NONCURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses
Accrued salaries and payroll related expenses
Deferred revenue
Operating lease liabilities, current
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
Deferred rent
Operating lease liabilities, net of current portion
TOTAL LIABILITIES
Commitments and contingencies (Note 12)
STOCKHOLDERS’ EQUITY
December 31, 2019
December 31, 2018
$
10,688,000 $
—
78,000
375,000
11,141,000
4,519,000
(2,634,000 )
1,885,000
33,000
1,543,000
150,000
831,000
2,496,000
68,000
5,121,000
4,394,000
16,863,000
165,000
364,000
21,786,000
3,784,000
(1,797,000)
1,987,000
79,000
1,295,000
211,000
817,000
—
69,000
2,471,000
$
18,147,000 $
26,244,000
$
1,100,000 $
521,000
2,368,000
1,731,000
612,000
6,332,000
—
2,059,000
8,391,000
695,000
464,000
1,835,000
271,000
—
3,265,000
81,000
—
3,346,000
Common stock, $0.001 par value, 100,000,000 authorized and 33,156,246 outstanding as of December 31, 2019 and
27,391,290 outstanding as of December 31, 2018
Preferred stock, $0.001 par value, 3,000,000 shares authorized and none outstanding as of December 31, 2019 and
December 31, 2018
Additional paid-in capital
Accumulated other comprehensive income and (loss)
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
33,000
27,000
—
132,214,000
1,000
(122,492,000 )
9,756,000
$
18,147,000 $
—
115,450,000
(15,000)
(92,564,000)
22,898,000
26,244,000
See Notes to Consolidated Financial Statements
42
Table of Contents
REVENUES
OPERATING EXPENSES
Research and development
Sales, marketing and administration
TOTAL OPERATING EXPENSES
NET OPERATING LOSS
OTHER INCOME (EXPENSE)
Interest and investment income
Other expense
TOTAL OTHER INCOME (EXPENSE)
LOSS BEFORE INCOME TAXES
Provision for income taxes
NET LOSS
Foreign currency translation adjustment, net of tax
COMPREHENSIVE LOSS
NET LOSS PER SHARE - BASIC AND DILUTED
Weighted average shares outstanding — basic and diluted
RESONANT INC.
Consolidated Statements of Comprehensive Loss
See Notes to Consolidated Financial Statements
43
Year Ended December 31,
2019
Year Ended December 31,
2018
$
735,000 $
524,000
18,854,000
12,040,000
30,894,000
14,271,000
11,546,000
25,817,000
(30,159,000 )
(25,293,000 )
253,000
(21,000 )
232,000
(29,927,000 )
1,000
(29,928,000 ) $
481,000
(3,000 )
478,000
(24,815,000 )
1,000
(24,816,000 )
16,000
$
(8,000 )
(29,912,000 ) $
(24,824,000 )
(1.02 ) $
29,409,776
(0.98 )
25,290,426
$
$
$
$
Table of Contents
RESONANT INC.
Consolidated Statements of Stockholders’ Equity
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income and (Loss)
Total
Stockholders’
Equity
Balance, January 1, 2018
19,511,276 $ 20,000 $
88,447,000 $
(67,812,000)
(7,000 ) $
20,648,000
Cumulative effect due to adoption of new
accounting standard, net of tax
Vesting of restricted stock units
Stock-based compensation
Sale of common stock, net of offering costs
Exercises of warrants
Common stock issued in exchange for
warrants
Exercises of stock options
Repurchase and retirement of common stock
Net loss
Foreign currency translation adjustment, net of
tax
Balance, December 31, 2018
Vesting of restricted stock units
Stock-based compensation
Sale of common stock, net of offering costs
Exercises of warrants
Net loss
Foreign currency translation adjustment, net of
tax
Balance, December 31, 2019
—
1,051,939
—
6,571,428
89,142
242,913
4,692
(80,100)
—
—
1,000
—
6,000
—
—
—
—
—
—
—
5,698,000
21,183,000
260,000
—
14,000
(152,000 )
—
64,000
—
—
—
—
—
—
—
(24,816,000)
—
—
—
—
27,391,290
1,317,587
—
3,960,560
486,809
—
27,000
1,000
—
4,000
1,000
—
115,450,000
—
5,463,000
9,915,000
1,386,000
—
(92,564,000)
—
—
—
—
(29,928,000)
—
—
—
—
—
—
—
—
—
(8,000 )
(15,000 )
—
—
—
—
—
64,000
1,000
5,698,000
21,189,000
260,000
—
14,000
(152,000 )
(24,816,000)
(8,000 )
22,898,000
1,000
5,463,000
9,919,000
1,387,000
(29,928,000)
—
—
—
—
16,000
16,000
33,156,246 $ 33,000 $
132,214,000 $
(122,492,000) $
1,000 $
9,756,000
See Notes to Consolidated Financial Statements
44
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RESONANT INC.
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended December
31, 2019
Year Ended December
31, 2018
$
(29,928,000 )
$
(24,816,000 )
Depreciation and amortization
Stock-based compensation
Non-cash interest and investment income
Non-cash patent write-off
Non-cash loss on disposal of assets
Right-of-use asset amortization
Changes in assets and liabilities:
Accounts receivable
Prepaids and other current assets
Other assets
Deferred taxes
Accounts payable
Accrued expenses
Accrued salaries and payroll related expenses
Operating lease liabilities
Deferred revenue
Deferred rent
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment
Purchases of property and equipment
Expenditures for patents and domain names
Redemptions of investments held-to-maturity
Purchases of investments held-to-maturity
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the sale of common stock from private placement offerings
Net proceeds from the sale of common stock from underwritten public offering
Acquisition of common stock under repurchase program
Proceeds from exercises of warrants
Proceeds from exercises of stock options
Net cash provided by financing activities
Effects of currency translation on cash, cash equivalents and restricted cash
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of year
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Common stock issued in settlement of accrued salaries and payroll related expenses
Property and equipment included in accounts payable
Property and equipment included in accrued liabilities
Patents included in accounts payable
Patents included in accrued liabilities
985,000
5,806,000
—
145,000
4,000
586,000 —
87,000
(10,000 )
1,000
—
249,000
210,000
191,000
(492,000 )
1,460,000
—
840,000
5,262,000
(153,000 )
96,000
(7,000 )
—
(115,000 )
239,000
(50,000 )
(1,000 )
107,000
(66,000 )
334,000
—
128,000
71,000
(20,706,000 )
(18,131,000 )
—
(806,000 )
(424,000 )
29,295,000
(12,432,000 )
15,633,000
9,919,000
—
—
1,387,000
—
11,306,000
—
6,233,000
4,605,000
10,838,000
1,000
342,000
206,000
159,000
83,000
—
$
$
$
$
$
$
$
16,000
(1,285,000 )
(219,000 )
39,590,000
(56,300,000 )
(18,198,000 )
—
21,190,000
(152,000 )
260,000
14,000
21,312,000
(2,000 )
(15,019,000 )
19,624,000
4,605,000
3,000
436,000
95,000
305,000
39,000
6,000
$
$
$
$
$
$
$
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same
such amounts shown above:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
December 31,
2019
2018
10,688,000 $
150,000
4,394,000
211,000
10,838,000 $
4,605,000
$
$
See Notes to Consolidated Financial Statements
45
Table of Contents
RESONANT INC.
Notes to 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
As of December 31, 2019, our accumulated deficit totaled $122.5 million. During 2019 our net loss totaled $29.9 million and we used $21.9 million of cash and
investments for operating activities, the purchase of property and equipment and expenditures for patents. To date we have not generated significant revenues to enable
profitability. We expect to continue to incur significant losses. These factors raise substantial doubt regarding our ability to continue as a going concern. At December 31,
2019 we had cash and cash equivalents of $10.7 million. In February 2020 we completed a common stock equity offering that netted $26.3 million. In the absence of a
significant revenue increase these cash resources will provide sufficient funding into early 2021. We are subject to the risks and uncertainties associated with a new business.
Our continuance as a going concern is dependent on future profitability. We are actively pursuing expanding our technology portfolio, increasing our revenue opportunities by
completing deliverables under current contracts and entering into new prepaid and paid up royalty arrangements, and efficiently managing operations and exploring cost
saving opportunities. We may not be successful in these efforts. We may need to seek to raise additional capital from the sale of equity securities or incurrence of
indebtedness. There can be no assurance that additional financing will be available to us on acceptable terms, or at all in which case 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. The accompanying
consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of this uncertainty.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates—The accompanying financial statements have been prepared in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP. 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. In the opinion of management, all adjustments, including normal recurring accruals considered necessary
for a fair presentation, have been included.
46
Consolidation - The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiary, GVR. 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, 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 at December 31, 2018 and 2019 consists of a 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. The terms of the letter of credit allow for a step-down of $50,000 annually upon performance of
certain events, primarily no late or defaulted payments. See also Note 12- Commitments and Contingencies, 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, accounts receivable, 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 collectability of 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.
The was no allowance for doubtful accounts at December 31, 2018 and December 31, 2019.
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.
47
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 December 31, 2018 and December 31, 2019, 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—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—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 months 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 10 - Leases.
48
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 employee 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 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
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 December 31, 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 years ended December 31, 2019 and
December 31, 2018, respectively.
We have filed, or are in the process of filing, tax returns that are subject to audit by the respective tax authorities. Although the ultimate outcome is unknown, we
believe that any adjustments that may result from tax return audits are not likely to have a material, adverse effect on our consolidated results of operations, financial position
or cash flows.
Reclassifications—Certain amounts in the consolidated balance sheet for the year ended December 31, 2018 have been reclassified to conform to the current year
presentation.
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
49
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.
50
Summary of changes in contract assets and liabilities for the years ended December 31, 2019 and 2018:
Contract assets
Contract assets, beginning
Contract assets at beginning of year transferred to accounts receivable
Reversal of contract assets due to changes in transaction price
Contract assets recorded on contracts during the period
Contract assets, ending
Contract liabilities
Contract liabilities, beginning
Recognition of revenue included in beginning of year contract liabilities
Contract liabilities, net of revenue recognized on contracts during the period
Contract liabilities, ending
The following table presents our disaggregated revenue by geographic region:
Revenue by geographic region:
United States
Switzerland
Total revenue
2019
2018
$
$
$
$
36,000 $
(36,000 )
(8,000 )
8,000
— $
271,000 $
(209,000 )
1,669,000
1,731,000 $
67,000
(43,000 )
(24,000 )
36,000
36,000
146,000
(138,000 )
263,000
271,000
2019
2018
$
$
735,000 $
—
735,000 $
447,000
77,000
524,000
Effective September 30, 2019 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, 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 initially in accounts receivable with the offset to deferred
revenue. Payment was received on October 11, 2019.
In accordance with the guidance of ASC 606, we are required to evaluate the variable consideration within the contract, primarily the milestone payments, and assess
the likelihood of achievement in determining our transaction price. Additionally, we must assess whether the variable consideration is constrained and whether recording such
variable revenue may result in a significant reversal of revenue due to uncertainties. We continue to evaluate variable consideration for inclusion in the transaction price, and
ultimately the revenue recognized, at each reporting period. We recognize revenue for the Murata contract over the estimated design development period, based on the level of
effort expended over total expected costs, as the services are performed. For the period ended December 31, 2019, we have determined that the milestone payments due upon
achievement of certain performance criteria are constrained and are thus not included in the transaction price. Therefore, revenue related to those milestone payments has not
been recognized. Revenue recognition related to each milestone payment will commence once the constraint is lifted.
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 2018, we invested in U.S. Treasury bills, commercial papers and a certificate of deposit that were classified as investments held-to-maturity. As of
December 31, 2018, both amortized cost value and fair value were $16.9 million with zero unrealized gain or loss. During 2018, U.S. Treasury bills totaling $25.0 million
matured in April 2018 and certain commercial papers totaling $14.6 million also matured during the year. All investments as of December 31, 2018 matured in January 2019.
During 2019, we invested in commercial papers and certificates of deposit that were classified as investments held-to-maturity. As of December 31, 2019, all of our
investments held-to-maturity had matured and we had no investments classified as held-to-maturity.
We recorded interest and investment income of $253,000 and $481,000 for the years ended December 31, 2019 and 2018, respectively, associated with our cash and
investment accounts. We did not recognize an other-than-temporary impairment or a comprehensive gain or loss for the years ended December 31, 2019 and 2018.
NOTE 5—PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following as of December 31, 2019 and 2018:
Cost:
Computers, peripheral and scientific equipment
Software
Leasehold improvements
Office furniture and equipment
2019
2018
$
1,654,000
2,131,000
$
310,000
424,000
1,350,000
1,749,000
294,000
391,000
Less: Accumulated depreciation and amortization
Property and equipment, net
$
4,519,000
(2,634,000 )
1,885,000
$
3,784,000
(1,797,000 )
1,987,000
Depreciation for the years ended December 31, 2019 and December 31, 2018 was $870,000 and $704,000, respectively. Cost basis of assets disposed for the years
ended December 31, 2019 and December 31, 2018 was $31,000 and $773,000, respectively. The disposals in 2018 were primarily a result of relocating our corporate offices
and writing off the fully amortized leasehold improvements related to our former office.
NOTE 6—INTANGIBLE ASSETS, NET, AND GOODWILL
Intangible assets include patents, domain name and other intangibles purchased from GVR, including customer relationships, technology and a trademark. Certain
patents were acquired from STI as a result of an asset contribution and were recorded at their carryover basis. The fair value of the patents remained substantially the same as
their carrying value at the exchange date. In addition, we acquired other patents and the domain name www.resonant.com through the normal course of business. Intangibles
acquired as part of the purchase of GVR were initially recorded at their fair value. Issued patents are amortized over their approximate useful life of 17 years, or 20 years in
the case of new patents, once they are approved by their respective regulatory agency. For the patents acquired from STI, we are amortizing them over the remaining useful
life of 1 to 11 years as of December 31, 2019. The domain name is amortized over the approximate useful life of 10 years. The other intangibles acquired from GVR are
amortized over their useful life of three to five years.
51
Intangible assets, net, consists of the following as of December 31, 2019 and 2018:
Cost:
Patents
Domain name
Client Base (1)
Trademark (1)
Backlog (1)
Technology
Less: Accumulated amortization
Intangible assets, net
2019
2018
$
1,801,000 $
22,000
144,000
18,000
13,000
77,000
2,075,000
(499,000 )
$
1,576,000 $
1,507,000
22,000
142,000
17,000
13,000
77,000
1,778,000
(404,000 )
1,374,000
(1)
Includes the impact of foreign currency translation. The total impact at December 31, 2018 was $1,000 and there was no impact at December 31,
2019.
During the year ended December 31, 2019 and 2018, we wrote-off $145,000 and $96,000, respectively, of patents we are no longer pursuing. The write-offs are
included in research and development expense. There were no impairments to any other intangibles.
Amortization of intangible assets was $115,000 and $136,000 for the years ended December 31, 2019 and 2018, respectively. The following table summarizes the
estimated amortization expense relating to the intangible assets as of December 31, 2019:
Years ending December 31,
2020
2021
2022
2023
2024
2025 and thereafter
Total amortization expense
$
$
94,000
85,000
75,000
72,000
71,000
554,000
951,000
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired from GVR Trade. Goodwill is not amortized, but is subject to
impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be impaired.
The following table summarizes goodwill arising from the acquisition of GVR Trade:
Balance at January 1, 2018
Effect of currency translation
Balance at December 31, 2018
Effect of currency translation
Balance at December 31, 2019
NOTE 7—WARRANTS
Goodwill
824,000
(7,000 )
817,000
14,000
831,000
$
$
$
From time to time, we have issued warrants to purchase shares of common stock. These warrants have been issued in connection with financing transactions and for
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 year ended December 31, 2018. No expense was recorded for the year ended December 31, 2019.
Consulting Warrant, Financing Warrant and Underwriting Warrant
Upon consummation of our Senior Convertible Note financing in June 2013, we issued warrants for business consulting services provided by MDB Capital Group,
LLC, or MDB. We issued a 7-year warrant to purchase 222,222 shares of our common stock at an exercise price of $0.01 per share, which we refer to as the Consulting
Warrant. The Consulting Warrant is exercisable six months after the completion of our initial public offering, or IPO, in 2014 and expires June 17, 2020.
In addition, for placement agent services provided by MDB in connection with our Senior Convertible Note financing, we issued to MDB a 7-year warrant to
purchase 208,763 shares of our common stock at an exercise price of $3.35 per share, which we refer to as the Financing Warrant. The Financing Warrant is exercisable six
months after the completion of our IPO and expires June 17, 2020.
In connection with the closing of our IPO, we also issued a third warrant to MDB related to their role as the sole underwriter for our IPO, which we refer to as the
Underwriting Warrant. We issued them a 5-year warrant to purchase 310,500 shares of common stock at an exercise price of $7.50 per share. The warrant was not
exercisable until November 24, 2014 (180-days from the date of the underwriting agreement) and expired May 28, 2019.
Private Placement Warrants - 2016
In April 2016, we issued warrants to purchase 1,996,880 shares of our common stock at an exercise price of $2.86 in connection with our private placement sale of
1,996,880 shares of common stock. The warrants were exercisable for a period
commencing October 2016 and expired on April 25, 2019. We also issued to the placement agents in the financing, warrants to purchase an aggregate of 99,844 shares of our
common stock at an exercise price of $2.86 for a period commencing 6 months and ending 36 months after the closing. We refer to these warrants as Private Placement
Warrants - 2016. In December 2017, we entered into Warrant Exercise Agreements with certain holders of Private Placement Warrants - 2016 to induce the exercise of
836,780 warrants in full. Pursuant to the agreements, the warrant holders exercised in full the warrants and purchased an aggregate of 836,780 shares of our common stock at
an exercise price of $2.86 per share, for an aggregate exercise price of approximately $2.4 million and we paid the warrant holders aggregated inducement fees of
approximately $239,000, which resulted in net proceeds to us of $2.2 million. All remaining unexercised warrants as of April 25, 2019 expired.
Underwriting Warrants - Public Offering 2016
In September 2016, we issued warrants to purchase 135,750 shares of our common stock at an exercise price of $4.25 to the underwriter of our public offering of
2,715,000 shares of common stock. The warrants were exercisable for a 2 year period commencing September 9, 2017. We refer to these warrants as Underwriting Warrants -
Public Offering 2016. All remaining unexercised warrants as of September 9, 2019 expired.
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 after the closing of the financing and expire on September 28, 2020. Collectively, we refer to these warrants as Private Placement Warrants - September 2017.
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
53
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 after the closing of
the financing and expire on September 28, 2020. Collectively, we refer to these warrants as Placement Agent Warrants - 2017.
A roll-forward of warrant activity from January 1, 2018 to December 31, 2018 is shown in the following table:
Bridge Warrants
Consulting Warrant
Financing Warrant
Underwriting Warrant
IR Consulting Warrant
Private Placement Warrants - 2016
Underwriting Warrants - Public Offering 2016
Private Placement Warrants - September 2017
Placement Agent Warrants - 2017
Issued and
Outstanding
Warrants as of
January 1, 2018
249,999
12,223
62,530
310,500
6,000
891,063
122,175
1,976,919
98,846
Warrants
Exercised/
Expired
(249,999 ) (1)
(5,556 ) (2)
—
—
(6,000 ) (3)
(73,000) (4)
—
(10,600) (5)
—
3,730,255
(345,155 )
Issued and
Outstanding
Warrants as of
December 31, 2018
—
6,667
62,530
310,500
—
818,063
122,175
1,966,319
98,846
3,385,100
(1) During the year ended December 31, 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 year ended December 31, 2018, there were 5,556 warrants that were exercised through a cashless exercise, which netted 5,542 shares being
issued.
(3) During the year ended December 31, 2018, 6,000 warrants
expired.
(4) During the year ended December 31, 2018, there were 73,000 warrants exercised for
cash.
(5) During the year ended December 31, 2018, there were 10,600 warrants exercised for
cash.
A roll-forward of warrant activity from January 1, 2019 to December 31, 2019 is shown in the following table:
Consulting Warrant
Financing Warrant
Underwriting Warrant
Private Placement Warrants - 2016
Underwriting Warrants - Public Offering 2016
Private Placement Warrants - September 2017
Placement Agent Warrants - 2017
(1) During the year ended December 31, 2019, 310,500 warrants
expired.
Exercise
Price
Expiration Date
Issued and
Outstanding
Warrants as of
January 1, 2019
Warrants
Exercised/
Expired
Issued and
Outstanding
Warrants as of
December 31, 2019
$0.01
$3.35
$7.50
$2.86
$4.25
$4.85
$4.85
6/17/2020
6/17/2020
5/28/2019
4/25/2019
9/9/2019
9/28/2020
9/28/2020
6,667
62,530
310,500
818,063
122,175
1,966,319
98,846
3,385,100
—
—
(310,500 ) (1)
(818,063 ) (2)
(122,175 ) (3)
—
—
(1,250,738)
6,667
62,530
—
—
—
1,966,319
98,846
2,134,362
(2) During the year ended December 31, 2019, there were 485,000 warrants exercised for cash, including 335,000 warrants exercised by our significant shareholder, Park City Capital.
Additionally, there were 44,928 warrants that were exercised through a cashless exercise which netted 1,809 shares being issued and 288,135 warrants that expired.
54
(3) During the year ended December 31, 2019, 122,175 warrants
expired.
NOTE 8—STOCKHOLDERS’ EQUITY AND EARNINGS 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, including 396,000 shares purchased by Park City Capital, a significant shareholder
for $1.0 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. As of
February 11, 2020, we have raised a total of $28.8 million of gross proceeds from the sale of 19,166,667 shares of our common stock, leaving approximately $21.2 million of
securities available for issuance pursuant to the Form S-3. The Form S-3 will expire in November 2021.
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. During the year ended December 31, 2018, we repurchased and retired 80,100 shares of
common stock, at an aggregate cost of approximately $152,000, including commissions, or an average price of $1.88 per share. There were no shares repurchased during the
year ended December 31, 2019 and the program has expired.
55
Earnings Per Share
The following table presents the number of shares excluded from the calculation of diluted net loss per share attributable to common stockholders as of December
31, 2019 and 2018:
Common stock warrants
Common stock options
Non-vested restricted stock unit awards
Total shares excluded from net loss per share attributable to common stockholders
2019
2018
2,134,362
1,340,252
2,556,004
6,030,618
3,385,100
1,255,280
1,921,594
6,561,974
NOTE 9— 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 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. As of
December 31, 2019, there were 3,173,421 shares available to issue under the 2014 Plan.
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 years ended December 31, 2019 and 2018, we granted incentive stock options for the purchase of 154,500 and 252,500 shares, respectively, of our
common stock to our employees and non-employees. The options granted in 2018 have an exercise price range of $1.80 to $5.96 per share with a term of ten years. The
options granted in 2019 have an exercise price range of $1.52 to $3.26 per share with a term of ten years. The options vest over various periods, generally quarterly over
sixteen quarters. The options granted in 2019 had an aggregate grant date fair value of $271,000 and the options granted in 2018 had an aggregate grant date fair value of
$779,000 utilizing the Black-Scholes option valuation model.
We estimated the fair value of stock options awarded during the years ended December 31, 2019 and 2018 using the Black-Scholes option valuation model. The fair
values of stock options granted for the years were estimated using the following assumptions:
56
Stock Price
Dividend Yield
Expected Volatility
Risk-free interest rate
Expected Term
Option Grants
Awarded During the
Year Ended December 31, 2019
Option Grants
Awarded During the
Year Ended December 31, 2018
$1.52 - $3.26
0%
70.0%
1.47% - 2.62%
7 years
$1.80 - $5.96
0%
70.0%
2.50% - 3.09%
7 years
Stock-based compensation expense related to stock options was $430,000 and $476,000 for the years ended December 31, 2019 and 2018, respectively. 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. For the years ended December 31, 2019 and 2018, we applied a forfeiture rate
of six percent, 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 year ended December 31, 2018:
Outstanding, January 1, 2018
Granted
Exercised
Canceled/Forfeited
Outstanding, December 31, 2018
Exercisable, January 1, 2018
Vested
Exercised
Canceled/Forfeited
Exercisable, December 31, 2018
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Life In
Years
Number of
Options
1,082,490 $
252,500
(4,692 )
(75,018)
1,255,280 $
4.87 $
4.54
2.10
4.72
4.82 $
3.00
3.09
1.75
2.89
3.03
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
704,303 $
161,404
(4,692 )
(17,996)
843,019 $
5.08 $
4.69
2.10
4.72
5.02 $
3.17
2.89
1.75
2.84
3.13
57
8.38
9.16
—
—
7.75
Weighted
Average
Remaining
Life In
Years
8.15
7.56
—
—
7.23
The following is a summary of our stock option activity during the year ended December 31, 2019:
Outstanding, January 1, 2019
Granted
Exercised
Canceled/Forfeited
Outstanding, December 31, 2019
Exercisable, January 1, 2019
Vested
Exercised
Canceled/Forfeited
Exercisable, December 31, 2019
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Life In
Years
4.82 $
2.61
—
4.72
4.57 $
3.03
1.76
—
3.03
2.88
7.75
9.44
—
—
6.95
Number of
Options
1,255,280 $
154,500
—
(69,528)
1,340,252 $
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
843,019 $
178,732
—
(32,659)
989,092 $
5.02 $
3.98
—
4.55
4.85 $
3.13
2.52
—
2.81
3.03
Weighted
Average
Remaining
Life In
Years
7.23
7.05
—
—
6.37
The following table presents information related to stock options outstanding and exercisable at December 31, 2019:
Options Outstanding
Options Exercisable
Exercise
Price
$1.52 - $3.15
$3.25 - $4.92
$5.01 - $6.00
$6.18 – $7.20
$7.54 – $7.80
$8.06 - $12.98
Outstanding
Number of
Options
310,683
596,203
273,066
70,000
67,800
22,500
1,340,252
Weighted
Average
Remaining
Life In
Years
Exercisable
Number
of Options
158,650
444,371
240,755
60,008
62,808
22,500
989,092
6.52
7.49
4.93
5.22
5.21
5.05
6.37
As of December 31, 2019, there was $779,000 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a
weighted average vesting period of approximately 2.4 years. The aggregate intrinsic value of outstanding options and options vested as of December 31, 2019 were $98,000
and $68,000, respectively, representing options whose exercise price was less than the closing fair market value of our common stock of $2.42 per share. The aggregate
intrinsic value of outstanding options and options vested as of December 31, 2018 were zero as there were no options whose exercise price was less than the closing fair
market value of our common stock of $1.33 per share. There were no excess tax benefits realized for tax deductions from stock options exercised during the years ended
December 31, 2018 and 2019 as we have recorded a full valuation allowance against our deferred income taxes.
58
Restricted Stock Units Activity
We account for restricted stock units (RSUs) issued to employees at fair value, based on the market price of our stock on the date of grant, net of estimated
forfeitures. The fair value of non-employee restricted stock units awarded are re-measured as the awards vest, and the resulting increase in fair value, if any, is recognized as
expense in the period the related services are rendered. 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 years ended December 31, 2019 and 2018 we recorded $5.4
million and $4.8 million, respectively, of stock-based compensation related to restricted stock units.
A summary of restricted stock unit activity for the year ended December 31, 2018 is as follows:
Outstanding at January 1, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2018
A summary of restricted stock unit activity for the year ended December 31, 2019 is as follows:
Outstanding at January 1, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Number of
Restricted Share
Units
Weighted-Average
Grant-Date Fair
Value Per Share
1,476,858 $
1,661,750
(1,051,939 )
(165,075 )
1,921,594 $
4.96
4.60
4.68
5.17
4.78
Number of
Restricted Share
Units
Weighted-Average
Grant-Date Fair
Value Per Share
1,921,594 $
2,115,177
(1,317,586 )
(163,181 )
2,556,004 $
4.78
2.78
3.92
4.19
3.38
As of December 31, 2019, there was 5.5 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 market condition being met, net of estimated pre-
vesting forfeitures. To determine the fair value of the award, we used a Monte Carlo simulation, which simulates future stock prices for the Company and, hence, shares
vested, pursuant to the award. A key input into the model is the expected volatility for our stock. This
59
estimate considered the historical volatility of our stock as well as the stock price volatility of guideline public companies. The fair value was determined to be $74,000 at the
original grant date, and was $147,000 as of the modification date. For the years ended December 31, 2019 and 2018, we recognized $37,000 and $24,000 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
$116,000 and is expected to be recognized over 2.8 years.
In December 2019, we granted 200,000 market-based restricted stock units to an executive. The restricted stock units are subject to the same market-based vesting
requirements discussed for the award granted in August 2016 and modified in June 2019. The share price on the date of issuance was $2.15 per share and the fair value was
determined to be $26,000 using a Monte Carlo simulation. We recognized $2,000 of stock compensation expense in connection with this award, which is included in research
and development expenses. The unamortized expense related to this award is $24,000 and is expected to be recognized over 2.75 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 consolidated statements of comprehensive loss is allocated as follows:
Research and development
Sales, marketing and administration
Total stock-based compensation
NOTE 10—LEASES
Year Ended
December 31, 2019
Year Ended
December 31, 2018
2,823,000
2,983,000
5,806,000 $
2,556,000
2,706,000
5,262,000
$
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 $150,000 letter of credit in favor of the lessor. The letter of credit was originally for
$200,000 at lease inception and 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 $150,000 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 December 31, 2019. Our
lease agreements do not require material variable minimum lease payments, residual value guarantees or restrictive covenants.
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.
60
The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2019 is shown below:
Weighted average remaining lease term (years)
Weighted average discount rate (%)
4.24
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 December 31, 2019:
2020
2021
2022
2023
2024
Total minimum lease payments
Less: imputed interest
Total operating lease liabilities
726,000
748,000
557,000
555,000
376,000
2,962,000
(291,000 )
2,671,000
$
Operating lease costs were $1,066,000 for the year ended December 31, 2019, of which $803,000 and $263,000 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 year ended December 31, 2018 of
$663,000 of which $158,000 and $505,000 are included in research and development expenses and sales, marketing and administration expenses, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $492,000 for the year ended December 31, 2019, and this amount is included in
operating activities in the consolidated statement 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 are as follows:
2019
2020
2021
2022
2023
2024
December 31, 2018
$
658,000
726,000
748,000
557,000
555,000
376,000
Future minimum obligations
$
3,620,000
61
NOTE 11—INCOME TAXES
The provision for income taxes by jurisdiction consists of the following as of December 31, 2019 and 2018:
U.S. federal:
Current
Deferred
Total U.S. federal
U.S. state and local:
Current
Deferred
Total U.S. state and local
Foreign:
Current
Deferred
Total foreign
2019
2018
$
— $
—
—
1,000
—
1,000
—
—
—
—
—
—
2,000
—
2,000
—
(1,000 )
(1,000 )
Provision for income taxes
$
1,000 $
1,000
Income taxes differ from the amounts computed by applying the U.S. federal income tax rate to pretax income (loss) before income taxes as a result of the following:
Expected income tax benefit
State income tax (benefit), net of federal benefit
Valuation allowance
Permanent differences:
Stock options
Research & development credit
Adjustment to deferred taxes
Foreign rate differential
Other
Provision for income taxes
2019
2018
(6,284,000 ) $
(2,476,000 )
9,131,000
(5,211,000 )
(1,997,000 )
7,372,000
493,000
(715,000 )
(157,000 )
1,000
8,000
1,000 $
285,000
(405,000 )
(68,000 )
2,000
23,000
1,000
$
$
For each of the years ended December 31, 2019 and 2018 we recorded a net income tax provision of $1,000. Deferred income tax reflects the tax effects of temporary
differences that gave rise to significant portions of our deferred tax assets and liabilities.
62
Deferred income tax consists of the following:
U.S. federal and state deferred tax assets—long term:
Accrued payroll
Accrued expenses
Intangibles
Research & development credit
Net operating loss
Stock compensation
Lease liabilities
New jobs credit
Total long-term assets
Total deferred tax assets
U.S. federal and state deferred tax liabilities—long term:
Fixed assets
Right of use assets
Total deferred tax liabilities
Net deferred tax assets - long term
Less: Valuation allowance
Net deferred tax assets
Foreign deferred tax assets—long term:
Net operating loss
Total foreign deferred tax assets
Foreign deferred tax liabilities—long term:
Intangibles
Total foreign deferred tax liabilities
Net foreign deferred tax assets (liabilities)
Less: Valuation allowance
Net deferred tax assets (liabilities)
As of December 31,
2019
As of December 31,
2018
261,000 $
77,000
390,000
3,651,000
27,568,000
672,000
750,000
8,000
33,377,000
33,377,000
102,000
45,000
418,000
2,239,000
20,140,000
612,000
—
8,000
23,564,000
23,564,000
—
(701,000 )
(701,000 )
(16,000)
—
(16,000)
32,676,000
(32,676,000 )
23,548,000
(23,548,000)
— $
—
8,000 $
8,000
9,000
9,000
—
—
8,000
(8,000 )
— $
(4,000 )
(4,000 )
5,000
(5,000 )
—
$
$
In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act represents major tax reform legislation that, among other
provisions, reduced the U.S. corporate tax rate. The reduction in the tax rate reduced our federal and state net deferred tax assets by $6.1 million, primarily related to our net
operating loss carryforwards. Due to the full valuation allowance recorded against our federal and state net deferred tax assets, there was no impact to our income tax expense
for the year ended December 31, 2019 or 2018.
We recorded a full valuation allowance against our U.S. federal and state net deferred tax assets at December 31, 2019 and December 31, 2018. In determining the
need for a valuation allowance, we reviewed all available evidence pursuant to the requirements of FASB ASC Topic 740, Income Taxes. Based upon our assessment of all
available evidence, we have concluded that it is more likely than not that the net deferred tax assets will not be realized. For the year ended December 31, 2019, the valuation
allowance increased by $9.1 million. For the year ended December 31, 2018, the valuation allowance increased by $7.4 million.
As of December 31, 2019, we had federal net operating loss carryforwards of approximately $98.2 million, state net operating loss carryforwards of approximately
$99.6 million and foreign net operating loss carryforwards of $51,000 in Switzerland. In accordance with the 2017 Tax Act, the $51.4 million federal net operating loss
carryforwards generated on or after January 1, 2018 will not expire and will be limited to 80% usage. The federal net operating loss carryforwards generated
63
prior to January 1, 2018 will begin to expire in 2033, and the state net operating loss carryforwards will begin to expire in 2033. Our ability to utilize net operating loss
carryforwards may be limited in the event that a change in ownership, as defined in Section 382 of the Internal Revenue Code, occurs in the future. In the event a change of
ownership occurs, it will limit the annual usage of the carryforwards in future years. Management believes that certain changes in control have occurred which resulted in
limitations on our net operating loss carryforwards; however, management has determined that these limitations will not impact the ultimate utilization of the net operating
loss carryforwards.
We recognize interest and penalties related to income tax matters in income taxes, and there were none during the years ended December 31, 2019 and 2018.
ASC 740 guidance requires us to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount
of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates
and judgments are reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We have no
significant uncertain tax positions for the years ended December 31, 2019 and 2018.
Our annual income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment. Our judgments,
assumptions and estimates relative to current income taxes take into account current tax laws, their interpretation of current tax laws and possible outcomes of future audits
conducted by domestic tax authorities. We operate within federal and state taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex
issues which may require an extended period of time to resolve. We are currently not being examined by any tax authorities. We are subject to taxation in the United States,
California, Massachusetts and Switzerland. As of December 31, 2019, our tax years remain open to examination by the taxing authorities for all years since our incorporation
in 2013.
NOTE 12—COMMITMENTS AND CONTINGENCIES
Purchase Commitments—We have non-cancelable purchasing commitments that we incur in the ordinary course of business. The purchase commitments covered by
these agreements are for less than one year and aggregate to $824,000 as of December 31, 2019.
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 such actions 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 December 31, 2018 and 2019, there was no litigation or contingency with at least a reasonable possibility of a material loss. No losses have been recorded during
the years ended December 31, 2018 and 2019, 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.
64
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.
NOTE 13—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 year ended December 31, 2019, we
recorded expenses of $21,000 in connection with the cash compensation portion of the consulting agreement, which is included in general and administrative expenses.
Additionally, during the year ended December 31, 2019, we recorded $68,000 related to the restricted stock unit award, which is included in selling, general and
administrative expenses. As of December 31, 2019, there were no amounts due to the board member under this consulting agreement.
NOTE 14—EMPLOYEE BENEFIT PLAN
We have a 401(k) Savings Retirement Plan that covers substantially all domestic employees who meet the plan’s eligibility requirements and provides for an
employee elective contribution and employer matching contributions.
We recorded matching contributions to the retirement plan of $497,000 and $372,000 for the years ended December 31, 2019 and 2018, respectively.
NOTE 15—SUBSEQUENT EVENTS
On February 6, 2020, we entered into an underwriting agreement relating to an underwritten public offering of 16,666,667 shares of the Company’s common stock,
$0.001 par value, at an offering price to the public of $1.50 per share. Pursuant to the underwriting agreement, the Company granted the underwriters a 30-day option to
purchase up to an additional 2,500,000 shares of common stock on the same terms and conditions. The underwriters exercised their option with respect to all 2,500,000
additional shares on February 10, 2020. We consummated the sale of an aggregate of 19,166,667 shares of our common stock, including the 2,500,000 shares subject to the
underwriters’ over-allotment option, on February 11, 2020, and received gross proceeds of approximately $28.8 million, or net proceeds of approximately $26.3 million after
deducting the underwriting discount and estimated expenses payable by us.
65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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 Annual Report on Form 10-K, 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 December 31, 2019, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our
CEO and CFO have concluded that as of December 31, 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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Our management, with the participation of our CEO and CFO, has assessed the effectiveness of the internal control over financial reporting as of December 31,
2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control
- Integrated Framework (2013 Framework). Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2019.
Attestation Report of Registered Public Accounting Firm
Crowe LLP, our independent registered public accounting firm that audited our financial statements included in this report, has issued an attestation report on our
internal control over financial reporting. Crowe LLP’s attestation report appears in this Form 10-K.
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 December 31, 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.
ITEM 9B. OTHER INFORMATION
66
On March 9, 2020, the Compensation Committee of our Board of Directors approved quarterly and annual bonus awards to our employees, including our named
executive officers, pursuant to our 2019 Incentive Bonus Program for their performance during the fourth quarter and fiscal year ended December 31, 2019. The annual bonus
awards were paid in cash, and the quarterly bonus awards were paid in the form of restricted stock units for shares of our common stock. The cash and restricted stock units
awarded to our named executive officers are set forth in the table below. The restricted stock units awarded to our named executive officers vest in full on May 13, 2020.
Named Executive Officers
George Holmes
Martin McDermut
Robert Hammond
Neal Fenzi
Cash Amount
Number of
RSU Shares
$
$
$
$
58,231
24,937
22,833
22,593
—
18,533
8,047
4,512
67
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the disclosure appearing under the headings “Election of Directors,” “Executive Officers,”
“Board of Directors and Corporate Governance” and “Other Matters” in our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2019.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the disclosure appearing under the heading “Executive Compensation” in our Proxy Statement
for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2019.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the disclosure appearing under the headings “Security Ownership of Certain Beneficial Owners
and Management” and “Equity Compensation Plan Information” in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120
days of the fiscal year ended December 31, 2019.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the disclosure appearing under the heading “Certain Relationships and Related Party
Transactions” and “Board of Directors and Corporate Governance -- Director Independence” in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days of the fiscal year ended December 31, 2019.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the disclosure appearing under the heading “Ratification of Appointment of Independent
Registered Public Accounting Firm” in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended
December 31, 2019.
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Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
We have filed the following documents as part of this Annual Report on Form 10-K:
1.
2.
Consolidated Financial
Statements
Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on
Form 10-K.
Financial Statement
Schedules
All schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or
the required information is otherwise included in our consolidated financial statements and related notes.
3.
Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit Description
Form
File Number
Exhibit
Filing Date
Incorporated by Reference
Filed
Herewith
Exhibit
Number
3.1.1
3.1.2
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1*
10.2.1*
10.2.2*
10.2.3*
Amended and Restated Certificate of Incorporation of
the Registrant
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
Amended and Restated Bylaws of the Registrant
Form of the Registrant’s common stock certificate
Amended and Restated Warrant to Purchase Common
Stock, dated November 15, 2013, issued by the
Registrant in favor of MDB Capital Group LLC for
222,222 shares of common stock
Amended and Restated Warrant to Purchase Common
Stock, dated November 15, 2013, issued by the
Registrant in favor of MDB Capital Group LLC for a to-
be-determined number of shares of common stock
Form of Warrant issued to investors
Placement Agent Warrant, dated September 28, 2017
Placement Agent Warrant, dated October 2, 2017
Form of Indemnification Agreement between the
Registrant and each of its directors and officers
Registrant’s Amended and Restated 2014 Omnibus
Incentive Plan
Amendment No. 1 to Registrant’s Amended and
Restated 2014 Omnibus Incentive Plan
Amendment No. 2 to Registrant’s Amended and
Restated 2014 Omnibus Incentive Plan
8-K
8-K
8-K
S-1/A
001-36467
001-36467
001-36467
333-193552
3.1
3.1
3.2
4.1
6/5/2014
6/12/2019
6/5/2014
4/11/2014
S-1
333-193552
10.25
1/24/2014
333-193552
10.26
1/24/2014
S-1
8-K
8-K
8-K
S-1
001-36467
001-36467
001-36467
333-193552
S-1/A
333-193552
333-211893
333-218542
S-8
S-8
69
10.3
10.4
10.1
10.1
10.2
10.1
10.3
9/29/2017
9/29/2017
10/3/2017
1/24/2014
4/11/2014
6/7/2016
6/7/2017
Exhibit
Number
10.2.4*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
Exhibit Description
Amendment No. 3 to Registrant’s Amended and
Restated 2014 Omnibus Incentive Plan
Offer Letter between the Registrant and Robert
Hammond, dated June 17, 2013
Offer Letter between the Registrant and Neal Fenzi,
dated June 17, 2013
Offer Letter between the Registrant and George B.
Holmes, dated February 9, 2016
Offer Letter between the Registrant and Martin S.
McDermut, dated October 14, 2018
Offer Letter between the Registrant and Dylan J. Kelly,
dated November 14, 2019
Form of Severance/Change-in-Control Agreement
Amended and Restated Restricted Stock Unit
Agreement, dated June 11, 2019, between the Registrant
and George B. Holmes
Restricted Stock Unit Agreement, dated December 2,
2019, between the Registrant and Dylan J. Kelly
10.11*
Outside Director Compensation Policy
10.12
10.13
10.14
10.15
10.16
10.17
10.18*
10.19*
10.20**
Settlement Agreement, dated April 1, 2018, among the
Registrant, Park City Capital Offshore Master Ltd., Park
City Capital, LLC, and Michael J. Fox
Standard Commercial Lease, dated May 14, 2018,
between the Registrant and University Business Center
Associates
Standard Multi-Tenant Office Lease - Gross, dated
December 16, 2016, between the Registrant and
SeaBreeze I Venture - TIC.
Registration Rights Agreement, dated February 20,
2017, between the Registrant and Grayboard
Investments, Ltd.
Registration Rights Agreement, dated September 28,
2017, among the Registrant and the investors identified
therein
Registration Rights Agreement, dated July 31, 2019,
among the Registrant and the investors identified therein
Amended and Restated Severance and Change in
Control Agreement, dated as of December 21, 2017, by
and between the Registrant and George B. Holmes
Technical Advisor Agreement, dated as of August 5,
2019, between the Registrant and Ruben Caballero
Collaboration and License Agreement, dated as of
September 30, 2019, by and between the Registrant and
Murata Manufacturing Co., Ltd.
Form
8-K
S-1
S-1
8-K
8-K
8-K
10-K
8-K
8-K
10-K
8-K
Incorporated by Reference
File Number
Exhibit
Filing Date
Filed
Herewith
001-36467
333-193552
333-193552
001-36467
001-36467
001-36467
001-36467
001-36467
001-36467
001-36467
001-36467
10.1
10.4
10.5
10.1
10.1
10.1
10.41
10.2
10.2
10.6
10.1
6/12/2019
1/24/2014
1/24/2014
3/4/2016
11/5/2018
12/2/2019
3/27/2015
6/12/2019
12/2/2019
3/25/2016
4/2/2018
8-K
001-36467
10.1
5/17/2018
8-K
001-36467
10.1
1/6/2017
8-K
8-K
8-K
8-K
001-36467
10.2
2/24/2017
001-36467
001-36467
001-36467
10.2
10.2
10.2
9/29/2017
8/6/2019
12/26/2017
10-Q
001-36467
10.1
11/7/2019
X
70
Exhibit
Number
21.1
23.1
24.1
31.1
31.2
32.1#
101.INS
101.SCH
101.CAL
101.DEF
Exhibit Description
List of Subsidiaries
Consent of Crowe LLP
Power of Attorney (included on signature page)
Certification of Principal Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-
14(a) as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-
14(a) as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
Incorporated by Reference
Form
10-K
File Number
001-36467
Exhibit
21.1
Filing Date
3/30/2017
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
*
Each a management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form
10-K.
** 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.
71
ITEM 16. FORM 10-K SUMMARY
None.
72
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 12, 2020
Resonant Inc.
By:
/s/ MARTIN S. MCDERMUT
MARTIN S. MCDERMUT
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George B. Holmes and Martin S.
McDermut, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
S-1
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
Title
/s/ George B. Holmes
George B. Holmes
/s/ Martin S. McDermut
Martin S. McDermut
/s/ Michael J. Fox
Michael J. Fox
/s/ Alan Howe
Alan Howe
/s/ Joshua Jacobs
Joshua Jacobs
/s/ Jack Jacobs
Jack Jacobs
/s/ Jean Rankin
Jean Rankin
/s/ Robert Tirva
Robert Tirva
/s/ Ruben Caballero
Ruben Caballero
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Date
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
Technical Advisor Agreement
This Technical Advisor Agreement (this “Agreement”) is made and entered into as of August 5, 2019 (the "Effective Date") by and
between Resonant Inc., a Delaware corporation (“Company”), and Ruben Caballero, an individual ("Technical Advisor").
Technical Advisor desires to perform, and Company desires to have Technical Advisor perform, consulting services as an
R E C I T A L
Exhibit 10.19
independent contractor to Company.
NOW, THEREFORE, the parties agree as follows:
1. Services.
(a) Performance. Technical Advisor agrees to perform the consulting services (the "Services") described in detail on
Exhibit A to this Agreement (the "Project Description"). Company designates Robert Hammond, Chief Technical Officer, as the point of
contact. Any invoices for payment must be forwarded to the Company’s point of contact.
(b) Payment. Company will pay Technical Advisor the compensation stated in the Project Description. Any expenses
incurred by Technical Advisor in performing the Services will be the sole responsibility of Technical Advisor, except as outlined in
Exhibit A or otherwise approved by the Company. Technical Advisor will invoice Company on a monthly basis for the Services. Company
will pay the invoices within 30 days of receipt and approval. Technical Advisor will receive no royalty or other remuneration on the
production or distribution of any products developed by Company or by Technical Advisor in connection with or based upon the
Services ("Products").
2. Relationship of Parties.
(a) Independent Contractor. Technical Advisor is an independent contractor and is not an agent or employee of, and has
no authority to bind, Company by contract or otherwise. Technical Advisor will perform the Services under the general direction of
Company, but Technical Advisor will determine, in Technical Advisor's sole discretion, the manner and means by which the Services are
accomplished, subject to the requirement that Technical Advisor shall at all times comply with applicable law. Company has no right or
authority to control the manner or means by which the Services are accomplished.
(b) Employment Taxes. Technical Advisor will report as self-employment income all compensation received by Technical
Advisor pursuant to this Agreement and timely pay all taxes and file all returns arising from such compensation (“Technical Advisor’s Tax
Responsibility”). Technical Advisor will indemnify Company against any and all tax liabilities, penalties and interest arising from any
breach of Technical Advisor’s Tax Responsibility. Company will be responsible for any tax liabilities, penalties and interest not arising
from a breach of Technical Advisor’s Tax Responsibility.
(c) Benefits. Except as otherwise expressly provided in this Agreement, Technical Advisor will not be entitled to receive
any vacation or illness payments, or to
participate in any plans, arrangements, or distributions by Company pertaining to any bonus, stock option, profit sharing, insurance or
similar benefits for Company's employees.
3. Inventions and Separate Works.
(a) Disclosure and Assignment of Inventions. Technical Advisor will promptly disclose and describe in reasonable detail
to Company, and agrees to assign and hereby does irrevocably and unconditionally assign to Company or its designee, its entire right,
title and interest throughout the world in and to all “Inventions” (as defined below) that Technical Advisor may, either solely or jointly with
others, create, make, discover, conceive or reduce to practice during the term of this Agreement in the course of performing the Services
that (i) relate to the business or actual or demonstrably anticipated research or development of Company or any Affiliate (as defined
below), (ii) were developed using any of the equipment, supplies or facilities of Company or any Affiliate or any Confidential Information,
or (iii) resulted from any work Technical Advisor performed for Company or any Affiliate (individually and collectively, “Works”). The
foregoing assignment of Inventions shall be without additional consideration of any kind other than the consideration recited herein.
Technical Advisor does not, however, assign or agree to assign any Inventions made by Technical Advisor prior to Technical Advisor’s
consultancy with the Company without the use of any Confidential Information or any Inventions created by the Technical Advisor while
not performing Services to the Company(such inventions, if any, the “Separate Works”).
(b) Definition of Inventions. As used in this Agreement, the term “Inventions” means: (i) any new or useful invention,
concept, art, discovery, design, development, contribution, finding or improvement, whether or not patentable or registrable under
copyright or similar laws; (ii) any and all copyrightable works, in any medium of expression; (iii) any and all trade names, service marks
and trademarks, including all goodwill associated therewith; (iv) any and all patentable works, including any patents, divisions,
continuations, continuations in part, applications, utility applications, provisional applications, substitute applications, reexaminations,
reissues and extensions; (v) any and all software (including both object and source code), works of authorship, utility models, topography
rights, database rights, formulae, methods, processes, manufacturing techniques and trade secrets; (vi) any other intellectual property or
proprietary rights anywhere in the world; (vii) any and all related know-how developed in the performance of the Services and rights to
obtain, register, perfect and enforce any right or interest in any of (i) through (vi); and (viii) the right to sue for past infringement in
connection with any right or interest in any of (i) through (vii).
(c) No Designation as Inventor; Waiver of Moral Rights. Technical Advisor agrees that, except to the extent required by
applicable law, Company shall not be required to designate Technical Advisor as the inventor or author of any Works. Technical Advisor
waives and releases, to the extent permitted by applicable law, all of Technical Advisor’s rights to such designation and any rights
concerning future modifications to Works.
(d) Maintenance of Records. Technical Advisor agrees to keep and maintain adequate and current written records of all
Inventions created, made, discovered, conceived or reduced to practice by Technical Advisor (solely or jointly with others) in the
performance of the Services during the term of this Agreement. The records will be in the form of notes, sketches, drawings and any
other format that may be specified by Company. The records will be available to and remain the sole property of Company at all times.
2
(e) Patent and Copyright Registrations. Technical Advisor agrees to assist Company, or its designee, at Company’s
expense and direction, in every proper way to secure Company’s, or its designee’s, rights in the Works and any copyrights, patents,
trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the
disclosure to Company or its designee of all pertinent information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments, recordations, and all other instruments that Company or its designee shall deem necessary in order to
apply for, obtain, maintain and transfer such rights and in order to assign and convey to Company or its designee and any successors,
assigns and nominees the sole and exclusive right, title and interest in and to such Works, and any copyrights, patents, mask work rights
or other intellectual property rights relating thereto. Technical Advisor further agrees that Technical Advisor’s obligation to execute or
cause to be executed, when it is in Technical Advisor’s power to do so, any such instrument or papers shall continue after the termination
of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If Company or its
designee is unable because of Technical Advisor’s mental or physical incapacity or more than temporary unavailability to secure
Technical Advisor’s signature to apply for or to pursue any application for any United States or foreign patents, copyrights, mask works or
other registrations covering any Works, then Technical Advisor hereby irrevocably designates and appoints Company and its duly
authorized officers and agents as Technical Advisor’s agent and attorney in fact, to act for and in Technical Advisor’s behalf and stead to
execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance,
maintenance or transfer of patent, copyright or other registrations thereon with the same legal force and effect as if originally executed by
Technical Advisor. Technical Advisor hereby waives and irrevocably quitclaims to Company or its designee any and all claims, of any
nature whatsoever, which Technical Advisor now or hereafter has for infringement of any and all proprietary rights assigned to Company
or such designee. Technical Advisor understands that Technical Advisor will be compensated at an hourly rate of $250.00 for any
assistance required by Company pursuant to this Section 3(e), and the Company will reimburse Technical Advisor for any out-of-pocket
expenses incurred at Company’s specific instruction.
(f) Exception to Assignments. Solely to the extent that the assignment of any Work or portion thereof as contemplated by
this Section 3 cannot be effected under applicable law, Technical Advisor agrees that Company or its designee is hereby granted an
exclusive (even as against Technical Advisor, Technical Advisor’s heirs, executors, administrators and other legal representatives, and
Technical Advisor’s successors and assigns), perpetual, irrevocable, worldwide, sub-licensable, royalty-free and fully-paid license, in all
fields of use, under any and all rights (including all patent, copyright and other intellectual property rights) in and with respect to such
Work or portion thereof.
(g) Separate Works. Technical Advisor agrees not to incorporate into any Works any Separate Works, absent the prior
knowledge and consent of the Company. If, in the course of performing the Services, Technical Advisor incorporates into any Works any
Separate Works, subject to the terms of any given Consent, then each of Company, its Affiliates and their respective designees shall
have, and is hereby granted, a nonexclusive, royalty-free, irrevocable, perpetual, sub-licensable worldwide license to make, have made,
modify, use and sell such Separate Works as part of or in connection with such Works or product incorporating, based on or otherwise
utilizing such Works.
3
4. Confidential Information.
(a) Prohibition on Disclosure and Use. Both during and after the term of this Agreement, Technical Advisor will maintain
in strict confidence and will not, without the prior express written consent of Company, (i) directly or indirectly disclose or cause to be
disclosed to any “Person” (as defined below) that is not a party to this Agreement (a “Third Party”), or (ii) use in any manner, except for
the sole benefit of Company or its Affiliates and to the extent necessary to perform the Services, any “Confidential Information”(as
defined below).
(i) “Person” means any individual, corporation (including any non-profit or professional corporation), general or
limited partnership, professional limited liability partnership, limited liability company, joint venture, estate, trust, association, organization,
or other entity.
(ii) “Affiliate” means any Person that directly or indirectly controls or is controlled by or under common control with
Company, and shall also mean any Person in which Company holds 20% or more of the outstanding equity or other ownership interests.
For the purposes of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of such Person or the power to elect directors, whether through the ownership of voting securities, by contract
or otherwise; and the terms “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.
(iii) “Confidential Information” means any proprietary or confidential information or trade secrets or know-how, whether or not it is in
written or other tangible or permanent form: (A) obtained from or belonging to Company or any Affiliate; (B) received by Company or any
Affiliate from any Third Party, which Company designates or treats as being proprietary, private or confidential, whether or not owned by
Company or any Affiliate; (C) concerning Company's or any Affiliate’s businesses, customers, suppliers and other business relationships
or financial affairs; (D) relating to the techniques, formulation, organization, design, development, implementation, preparation and other
operations, methods and accumulated experiences incidental to the sale and promotion of the products and services sold by Company or
any Affiliate, including information that pertains to the solicitation of customers for the sale of such products, job order specifications,
pricing structures or Company's or any Affiliate’s commission structure based thereon, or the services from time to time provided by
Company or any Affiliate to its customers; (E) relating to marketing techniques, advertising, promotions, supplier, customer and prospect
customer lists, mailing lists, concepts, ideas, know-how, trade secrets and/or research of Company or any Affiliate, whether prepared,
conceived or developed by an employee of or consultant to Company or any Affiliate (including Technical Advisor) or received by
Company or any Affiliate from a Third Party; or (F) that is identified as confidential by Company or any Affiliate, or that would be apparent
to a reasonable person, familiar with Company's or any Affiliate’s businesses and the industries in which it operates, as information of a
confidential or proprietary nature. For purposes of this Agreement, “Confidential Information” will not include that which (i) Technical
Advisor can establish was within his prior knowledge; (ii) is a matter of public knowledge, (iii) is independently developed by Technical
Advisor without the use, directly or indirectly, of the Confidential Information, (iii) was obtained from a third party which did not itself obtain
it in confidence and was not obligated to keep such information confidential, or (v) is required to be disclosed by law or the order of any
court or governmental agency, or in any litigation or similar proceeding, provided that Technical Advisor shall, prior to making any such
required disclosure, notify Company in sufficient time to permit them to seek an appropriate protective order. Nothing contained herein is
intended to waive or limit the
4
applicability of the provisions of California Labor Code Section 2860 or the Uniform Trade Secrets Act (California Civil Code Sections
3426-3426.11).
(b) Passwords and Keys. Without limiting the generality of the foregoing, Technical Advisor will not (i) reveal, disclose, or
otherwise make available to any Person any password or key of Company or any Affiliate, whether or not the password or key is assigned
to Technical Advisor, or (ii) obtain, possess, or use in any manner any password or key of Company or any Affiliate that is not assigned to
Technical Advisor. Technical Advisor will use commercially reasonable efforts to prevent the unauthorized use of any laptop or personal
computer, smart phone, peripheral device, software, or related technical documentation that Company permits Technical Advisor to
access or use, and will not input, load, or otherwise attempt any unauthorized use of software from or using any computer of Company or
any Affiliate.
(c) No Copies. Technical Advisor will not make copies of Confidential Information, whether in tangible, electronic or other
form, except as authorized by Company or necessary to perform the Services.
(d) Return of Confidential Information. Upon termination of this Agreement or at any time at the request of Company,
Technical Advisor will deliver to Company, at Technical Advisor’s sole expense, all written and other tangible material in Technical
Advisor’s possession constituting or incorporating Confidential Information and any other information belonging to the customers, clients
and suppliers of Company or any Affiliate who may have disclosed such information to Technical Advisor as the result of Technical
Advisor’s status as a consultant to Company, as well as any keys, pass cards, identification cards, computers, printers, pagers, personal
digital assistants, or similar items or devices that Company has provided to Technical Advisor ("Company Materials"). Technical Advisor
will not retain any Company Materials, including copies of any kind thereof or summaries or notes of any kind based thereon, after the
date this Agreement terminates. Technical Advisor agrees to provide Company with a written certification of compliance with the
obligations under this Section 4(e) promptly following termination of this Agreement.
5. Indemnification. Technical Advisor will use the reasonable skill and care customary for Technical Advisor’s profession and
agrees to indemnify Company for any losses (including attorney’s fees and costs) primarily caused by Technical Advisor’s willful
misconduct or gross negligence. Company agrees to indemnify Technical Advisor for any third party claim or losses, including attorney’s
fees, that are not based on Technical Advisor’s actual willful misconduct or gross negligence in the performance of the Services under
this Agreement.
6. Termination. Either party to this Agreement may terminate this Agreement at any time, for any reason or no reason, by prior
written notice to the other party to this Agreement.
7. Effect of Termination. Upon the termination of this Agreement for any reason:
(a) each party will be released from all obligations to the other arising after the date of termination, except that
termination of this Agreement will not relieve the parties of any obligations under Sections 1(b), 2(b), 3, 4, 5, 7, 8(c) and 9, nor will
termination relieve Technical Advisor or Company from any liability arising from any breach of this Agreement; and
5
(b) Technical Advisor will comply with the provisions of Section 4(d).
8. Covenants.
(a) Competitive Activities. Technical Advisor will not during the term of this Agreement, directly or indirectly, in any
individual or representative capacity, engage or participate in or provide services to any business that directly competes with the business
being conducted by Company.
(b) Pre-existing Obligations. Technical Advisor represents and warrants that Technical Advisor is not under any pre-
existing obligation inconsistent with the provisions of this Agreement. Technical Advisor has previously provided to Company, true,
correct and complete copies of all agreements containing any intellectual property, confidentiality, non-solicitation or non-competition
obligations applicable to Technical Advisor.
(c) Non-solicitation. Until the date twelve (12) months following any termination of this Agreement, Technical Advisor
shall not, directly or indirectly, for Technical Advisor’s own benefit or for the benefit of any Third Party, do any of the following: (i) through
the use of Confidential Information, solicit from any customer doing business with the Company or any Affiliate as of the termination of
this Agreement or within twelve (12) months prior to such termination, business of the same or of a similar nature to the business of the
Company or any Affiliate; (ii) through the use of Confidential Information, solicit from any known potential customer of the Company or
any Affiliate business of the same or of a similar nature to that which has, to Technical Advisor’s knowledge, been the subject of either
(A) a written or oral bid, offer or proposal by the Company or any Affiliate or (B) substantial preparation with a view to making such a bid,
proposal or offer, within twelve (12) months prior to Technical Advisor’s termination; (iii) through the use of Confidential Information, seek
to persuade any consultant or other service provider of the Company or any Affiliate to cease providing services to the Company or any
Affiliate; (iv) solicit the employment or services of, or hire, or cause others to solicit the employment or services of, or hire, any Person
who either (A) is at the time of solicitation, or immediately prior to the time of hiring was, employed by the Company or any Affiliate or (B)
to Technical Advisor’s knowledge, was employed by the Company or any Affiliate as of the time of the termination of this Agreement or
within twelve (12) months prior thereto; or (v) through the use of Confidential Information, otherwise interfere with the business or
accounts of the Company or any Affiliate. Notwithstanding the foregoing, the provisions of this Section 8(c) shall not be violated by (I)
general advertising or solicitation not specifically targeted at employees of Company or any Affiliate or (II) Technical Advisor’s serving as
a reference, upon request, for any employee of Company or any Affiliate.
9. General.
(a) Assignment. Technical Advisor may not assign Technical Advisor's rights or delegate Technical Advisor's duties under
this Agreement either in whole or in part without the prior written consent of Company. Any attempted assignment or delegation without
such consent will be void.
(b) Equitable Remedies. Because the Services are personal and unique and because Technical Advisor may have
access to Confidential Information of Company, Company will have the right to enforce this Agreement and any of its provisions by
injunction, specific
6
performance or other equitable relief without prejudice to any other rights and remedies that Company may have for a breach of this
Agreement, without any requirement that Company post a bond.
(c) Attorneys' Fees. If any action is necessary to enforce the terms of this Agreement, the substantially prevailing party
will be entitled to reasonable attorneys' fees, costs and expenses in addition to any other relief to which such prevailing party may be
entitled. The prevailing party shall be determined by the court or arbitration panel based upon an assessment of which party’s major
arguments or positions taken in the proceedings could fairly be said to have prevailed over the other party’s major arguments or positions
on major disputed issues.
(d) Governing Law; Severability. This Agreement will be governed by and construed in accordance with the laws of the
State of California excluding that body of law pertaining to conflict of laws. If any provision of this Agreement is for any reason found to be
unenforceable, the remainder of this Agreement will continue in full force and effect.
(e) Arbitration. Any dispute or controversy arising out of or relating to any interpretation, construction, performance,
termination or breach of this Agreement will be settled by final and binding arbitration by a single arbitrator to be held in Los Angeles,
California, in accordance with the rules applicable to commercial disputes of the Judicial Arbitration and Mediation Services, Inc.
("JAMS") then in effect ("JAMS Rules"); provided, however, that no dispute relating to Confidential Information, Works, Company
Materials or intellectual property shall be subject to this arbitration provision. The arbitrator selected shall be experienced in commercial
law matters and shall have the authority to grant all remedies otherwise available by law, including injunctions. Notwithstanding anything
to the contrary in the JAMS Rules, the arbitration shall provide (i) for written discovery and depositions adequate to give the parties
access to documents and witnesses that are essential to the dispute and (ii) for a written decision by the arbitrator that includes the
essential findings and conclusions upon which the decision is based. Subject to Section 9(c), each party shall each bear his/her or its own
costs and attorneys' fees incurred in conducting the arbitration, but the Company will pay all fees and administrative costs charged by the
arbitrator and JAMS. The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(f) Enforcement. Subject to Section 9(e), for all purposes of this Agreement or for recognition or enforcement of any
judgment, the parties submit to the personal jurisdiction of the courts of the State of California and the Federal courts of the United States
sitting in Los Angeles, California and any appellate court from any such state or Federal court, and hereby irrevocably and unconditionally
agree that all claims with respect to any such claim may be heard and determined in such California court or, to the extent permitted by
law, in such Federal court. The parties agree that a final judgment in any such claim shall be conclusive and may be enforced in any
other jurisdiction by suit on the judgment or in any other manner provided by law. Each of the parties irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or any related matter in any state or Federal court located in Los
Angeles, California and the defense of an inconvenient forum to the maintenance of such claim in any such court.
7
(g) Notices. Any notices under this Agreement will be sent by email or by certified or registered mail, return receipt
requested, to the email or physical address specified below or such other address as the party specifies in writing. Such notice will be
effective upon its sending or mailing as specified.
(h) Counterparts; Delivery by Facsimile, PDF Attachment or Electronic Signature. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same
instrument This Agreement and any amendments hereto, to the extent signed and delivered by means of a facsimile machine, PDF
attachment or DocuSign electronic signature shall be treated in all manner and respects as an original contract and shall be considered
to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party
hereto, each other party hereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto shall raise the
use of a facsimile machine, PDF attachment or DocuSign electronic signature to deliver a signature or the fact that any signature was
transmitted or communicated through such use as a defense to the formation of a contract, and each such party forever waives any such
defense.
(i) Complete Understanding; Modification. This Agreement, together with Exhibits A and B, constitute the complete and
exclusive understanding and agreement of the parties and supersedes all prior understandings and agreements between them or
between Technical Advisor or any Affiliate, whether written or oral, with respect to the subject matter hereof. Any waiver, modification or
amendment of any provision of this Agreement will be effective only if in writing and signed by the parties hereto.
8
IN WITNESS WHEREOF, the parties have signed this Agreement as of the Effective Date.
“Company” “Technical Advisor”
Resonant Inc.
/s/ Martin S. McDermut
Signature
Martin S. McDermut
Name
Chief Financial Officer
Title
/s/ Ruben Caballero
Signature
Ruben Caballero
Name
Email:
mmcdermut@resonant.com
Address:
175 Cremona Drive, Suite 200
Goleta, CA 93117
Email:
Address:
9
EXHIBIT A
Project Description
This Project Description is subject to all of the terms and conditions of the Technical Advisor Agreement by and between
Company and Technical Advisor.
1. Services: *Technical Advisor
* Travel to Santa Barbara as needed (no more than six (6) times per year unless mutually agreed)
* Brief monthly report (email) summarizing the mutually agreed to topic(s) worked on, and important results if
any. Company may request, and Technical Advisor shall provide, oral reports on a more regular basis.
2. Compensation for Services:
Cash-$50,000 per year, paid in twelve equal monthly
installments.
Upon
execution, Technical Advisor shall receive an award of Restricted Stock Units (RSU’s) equal in value
to $100,000. No later than January 15, 2020, Technical Advisor shall receive an additional grant of
RSU’s equal to $100,000 of value as of the grant date, provided that, as of the grant date of said
second agreement, Technical Advisor is still providing the Services to Company. The first grant shall
vest on January 1, 2020. The second grant will vest on December 31, 2020. In the event Technical
Advisor is still performing the Services to the Company after 2020, the Company will issue new grants
equal to no less than $100,000 worth of RSU’s in January of each additional year with said grants
vesting at the end of the year of said grant in each case so long as Technical Advisor is providing
services to the Company on the applicable vesting date. Notwithstanding the foregoing, in the event
Company terminates the Technical Advisor Agreement between the Company and Technical Advisor
other than as a result of a material breach of such agreement by Technical Advisor, all unvested RSUs
granted to Technical Advisor in accordance with the terms hereof that are outstanding at the time of
termination of such agreement shall vest. For purposes hereof, the “grant date” shall mean the date an
award of RSUs is approved by the Company’s Board of Directors or the Compensation Committee
thereof. Each award of RSUs shall be subject to the terms set forth in the Company’s standard form
RSU agreement for consultants. The Technical Advisor may make an 83(b) election with respect to
any and all grants.
A-1
3. Travel Expenses:
Approved travel to include coach airfare, or in the case of a flight of 4 hours or more, discounted
business class airfare, car rental or taxi fees, hotel accommodations, and meals. Receipts to be
provided for reimbursement. Travel must be approved in advance by email from the Technical
Advisor’s point of contact.
4. Other Expenses:
Other expenses are reimbursed with prior email approval from Technical Advisor’s point of
contact.
A-2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statements No. 333-196344, 333-211893, 333-211894, 333-214571, 333-218542 and 333-232094 on Form S-8
and in Registration Statements No. 333-211375,
333-217255, 333-221089, 333-228353, 333-233570 and 333-234370 on Form S-3 of Resonant Inc. of our report dated March 12, 2020 relating to the consolidated financial
statements, and the effectiveness of Resonant Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K.
/s/ Crowe LLP
Sherman Oaks, California
March 12, 2020
Certification of Principal Executive Officer Pursuant To
Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant To
Section 302 of Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, George B. Holmes, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Resonant
Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 12, 2020
/s/ George B. Holmes
George B. Holmes
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer Pursuant To
Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant To
Section 302 of Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Martin S. McDermut, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Resonant
Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 12, 2020
/s/ Martin S. McDermut
Martin S. McDermut
Chief Financial Officer
(Principal Financial and Accounting Officer)
Certifications of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), George B. Holmes, Chief Executive Officer (Principal Executive Officer) and Martin
S. McDermut, Chief Financial Officer (Principal Financial and Accounting Officer) of Resonant Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
1. Our Annual Report on Form 10-K for the year ended December 31, 2019, to which this Certification is attached as Exhibit 32.1 (the “Report”), fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
Date: March 12, 2020
/s/ George B. Holmes
George B. Holmes
Chief Executive Officer
(Principal Executive Officer)
/s/ Martin S. McDermut
Martin S. McDermut
Chief Financial Officer
(Principal Financial and Accounting Officer)