Merely 11 months ago, we marched hyperactive Resonant Inc. (NASDAQ CM: RESN) right to the time-out chair for bad behavior. Since then, Resonant has been tottering along without making one penny in revenue, just digging a hole deep enough to hold $30 million in debt… and it’s still digging.
Goleta, California-based Resonant, developer of radio frequency filters for mobile devices, held its initial public offering in May 2014 at $6 per share. That IPO generated $16 million or just enough to survive a couple of years. But the stock has zigzagged like a youngster hyped up on sugar, even as the company has failed to commercially launch its filters.
Today, Resonant is in big trouble… probably the worst ever.
Investors may find other viewpoints here. Meanwhile, we’ll hop back into Resonant’s playground to check out the five latest issues spatting the company’s fingers.
*1. No Cash: How To Make Payroll?
With no way to generate revenue, Resonant’s operating losses rose about $4 million in 2015 to hit almost $10 million.
Now Resonant is hurting for money. In December 2015, its cash and equivalents dropped to $2.5 million:
(Source: Company SEC filing)
But that was one quarter ago. And the company burns cash at a rate of $2.3 million per quarter.
So Resonant may have already run out of cash.
*2. Surprise! Going Concern Issues Tucked Into Holiday Filing
It was 6:32 p.m. on Good Friday eve. The markets were closed and most traders were consumed with thoughts of Easter egg hunts or religious services or simply enjoying a long weekend break from the stock market.
That’s when Resonant managers chose to file a stunning disclosure.
And Good Friday had dawned before the US Securities and Exchange Commission could file the company’s annual report containing that “going concern” disclosure tucked away on page 38. The disclosure included a revealing note from auditors to directors and stockholders. Auditors wrote:
“… the Company has earned no revenue since inception through December 31, 2015 and has incurred significant losses from operations since inception. In addition, the Company’s operations have been funded with initial capital contributions, proceeds from the sale of equity securities and debt. The Company’s principal sources of liquidity as of December 31, 2015 consist of existing cash balances and investments of $5.5 million. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern.”
Clearly now, auditors doubt the company will survive.
*3. Now What? Potential Stock Dilution Looms
In addition to the going concern notice, the company filing warned:
“We have determined that additional capital from the sale of equity securities or the incurrence of indebtedness and, ultimately, the achievement of significant operating revenues will be required for us to continue operations through the second quarter of 2016 and beyond.”
As any self-respecting 10-year-old might say, “Duh! They’ve gotta sell stock or get a loan. Because you can’t squeeze pennies out of an empty piggy bank.”
So, considering the rapid cash burn rate, only a white knight or a $9 million-plus stock offering could slap a Band-Aid on Resonant at this point and keep it breathing for one more year.
*4. Shaking Down The Piggy Bank
The last thing Resonant might want to do in this dire situation is hire a new executive and load him up with a six-figure salary and a boat-load of stock. But on Feb. 29, the company created the position of president, offered George Holmes a $100,000 signing bonus plus $295,000 yearly, plus 108,000 shares. And immediately after the next financing, he will be eligible for more shares totaling 3 percent of the company stock. During his employment, Mr. Holmes will even be allowed to do consulting through his business, aAgave Solutions.
Resonant also named another director in February. Directors, incidentally, are receiving a cool $50,000 annually.
The company’s top executives, though they didn’t receive a salary before June 2013, are now pulling down almost $1.5 million in compensation.
(Source: Company SEC filings)
Though the company is cash-starved and revenue-free, it’s shaking down the piggy bank and tossing money around like crazy. And little to no relief is expected anytime soon on the non-revenue status, as we’ll show below.
*5. Forewarned Dashed Deal Puts The Kibosh On Revenue Hopes
Resonant stock rocketed roughly 70 percent over the days and weeks following the March 8 announcement of a memorandum of understanding signed with a potential customer. Here’s the chart:
(Source: Yahoo Finance)
But even the CEO warned analysts that the MOU is not etched in stone and is not to be considered a revenue generator anytime soon. CEO Terry Lingren said: “… you know these are not going to be large enough to extend our run-way. So you will see the results of some of these initial payments in the Q1 financials and so this will be able to gauge the size of those at least within an order of magnitude at that point but they are not large.”
Indeed, the company targets a highly competitive area and its product candidates have previously failed to meet potential customers’ standards. TheStreetSweeper warned investors in March 2015 that Resonant’s deal with Skyworks appeared to be within weeks of completely falling apart (incidentally, the stock traded for over $14 per share pre-publication, compared to under $3 now).
Mr. Lingren told stunned analysts last year:
“Our design does not meet all the specification in the development agreement, but we believe it delivers competitive performance, which we view as a major accomplishment.”
“Our customer’s decision whether to use our design is complex and based on a number of considerations, many of which are beyond our control,” he added.
Sure enough, the Skyworks deal terminated in April 2015.
And, much as alluded to in the last conference call, CEO Lingren told analysts during the Q1 2015 earnings call not to expect revenue from its tune-able device before 2017. The non-committal chief executive soft-pedaled meaningful revenue from its two product candidates anytime soon, emphasizing expanded relationships instead.
Resonant’s stock price has once again flown way ahead of the company’s value and prospects. With some sort of capital raise such as a stock offering likely looming, this bad boy could get sent to penny stock land. We wouldn’t be surprised to see the stock soon drop to $1 per share.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in RESN and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].