UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20172021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number:001-38029
AKOUSTIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 33-1229046 | |
(State or other jurisdiction of | ||
incorporation or organization) | (IRS Employer Identification No.) |
9805 Northcross Center Court, Suite A | ||
Huntersville, NC | 28078 | |
(Address of principal executive offices) | (Postal Code) |
9805 Northcross Center Court, Suite A
Huntersville, North Carolina 28078
(Address of principal executive offices) (Zip Code)
704-997-5735
(Registrant’s telephone number, including area code)code: 1-704-997-5735
Not ApplicableSecurities registered under Section 12(b) of the Act:
(Former name, former address and former fiscal year, if changed since last report)
Title of Each Class: | Trading Symbol | Name of each exchange on which registered: | ||
Common Stock, $0.001 par value | AKTS | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
Securities registered under Section 12(g) of the Act:
None
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | ||
Emerging growth company |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of February 1, 2018,January 20, 2022, there were 22,320,70054,672,366 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.
AKOUSTIS TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDEDDecember DECEMBER 31,, 2017 2021
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Akoustis Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 11,698,531 | $ | 9,631,520 | ||||
Accounts receivable | 298,797 | — | ||||||
Inventory | 74,979 | 188,476 | ||||||
Prepaid expenses | 182,307 | 158,457 | ||||||
Deposits | 42,549 | 42,808 | ||||||
Total current assets | 12,297,163 | 10,021,261 | ||||||
Property and equipment, net | 12,283,207 | 7,853,814 | ||||||
Intangibles, net | 231,701 | 206,527 | ||||||
Other assets | 32,861 | 10,715 | ||||||
Total Assets | $ | 24,844,932 | $ | 18,092,317 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 3,027,331 | $ | 1,336,368 | ||||
Deferred revenue | 77,447 | 14,500 | ||||||
Total current liabilities | 3,104,778 | 1,350,868 | ||||||
Long-term Liabilities: | ||||||||
Contingent real estate liability | 1,809,847 | 1,730,542 | ||||||
Total long-term liabilities | 1,809,847 | 1,730,542 | ||||||
Total Liabilities | 4,914,625 | 3,081,410 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Preferred Stock, par value $0.001: 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Common stock, $0.001 par value; 45,000,000 shares authorized; 22,320,700 and 19,075,050 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively | 22,321 | 19,075 | ||||||
Additional paid in capital | 46,599,657 | 31,499,889 | ||||||
Accumulated deficit | (26,691,671 | ) | (16,508,057 | ) | ||||
Total Stockholders’ Equity | 19,930,307 | 15,010,907 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 24,844,932 | $ | 18,092,317 |
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
Assets | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 67,467 | $ | 88,322 | ||||
Accounts receivable | 2,502 | 1,170 | ||||||
Inventory | 2,286 | 1,390 | ||||||
Other current assets | 3,158 | 2,314 | ||||||
Total current assets | 75,413 | 93,196 | ||||||
Property and equipment, net | 40,248 | 30,730 | ||||||
Goodwill | 7,835 | — | ||||||
Intangibles, net | 10,167 | 572 | ||||||
Operating lease right-of-use asset, net | 389 | 471 | ||||||
Other assets | 60 | 25 | ||||||
Total Assets | $ | 134,112 | $ | 124,994 | ||||
Liabilities and Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 6,720 | $ | 6,954 | ||||
Deferred revenue | 101 | 41 | ||||||
Operating lease liability - current | 291 | 270 | ||||||
Total current liabilities | 7,112 | 7,265 | ||||||
Long-term Liabilities: | ||||||||
Contingent consideration | 1,082 | — | ||||||
Operating lease liability | 94 | 202 | ||||||
Deferred tax liability | 2,039 | — | ||||||
Other long-term liabilities | 117 | 117 | ||||||
Total long-term liabilities | 3,332 | 319 | ||||||
Total Liabilities | 10,444 | 7,584 | ||||||
Equity | ||||||||
Preferred stock, par value $0.001: 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 54,659,660 and 51,235,764 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively | 55 | 51 | ||||||
Additional paid in capital | 291,969 | 265,130 | ||||||
Accumulated deficit | (175,884 | ) | (147,771 | ) | ||||
Total Akoustis Technologies, Inc. equity | $ | 116,140 | $ | 117,410 | ||||
Noncontrolling interest | 7,528 | — | ||||||
Total Equity | 123,668 | 117,410 | ||||||
Total Liabilities and Equity | $ | 134,112 | $ | 124,994 |
See accompanying notes to the condensed consolidated financial statements
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) See accompanying notes to the condensed consolidated financial statements. Akoustis Technologies, Inc. For the Three
Months Ended
December 31,
2021 For the Three
Months Ended
December 31,
2020 For the Six
Months Ended
December 31,
2021 For the Six
Months Ended
December 31,
2020 Revenue Revenue with customers $ 3,672 $ 1,308 $ 5,540 $ 1,944 Cost of revenue 4,549 2,602 7,451 4,251 Gross profit (loss) (877 ) (1,294 ) (1,911 ) (2,307 ) Operating expenses Research and development 9,192 5,566 17,166 11,946 General and administrative expenses 5,146 3,361 9,022 6,288 Total operating expenses 14,338 8,927 26,188 18,234 Loss from operations (15,215 ) (10,221 ) (28,099 ) (20,541 ) Other (expense) income Interest (expense) income 28 (1,703 ) 62 (3,135 ) Change in fair value of derivative liabilities — 14 — (184 ) Total other (expense) income 28 (1,689 ) 62 (3,319 ) Net loss before income taxes $ (15,187 ) $ (11,910 ) $ (28,037 ) $ (23,860 ) Income Taxes (58 ) — (58 ) — Net Loss $ (15,245 ) $ (11,910 ) $ (28,095 ) $ (23,860 ) Net loss (income) attributable to noncontrolling interest (19 ) — (19 ) — Net loss attributable to common stockholders $ (15,264 ) $ (11,910 ) $ (28,114 ) $ (23,860 ) Net loss per common share - basic and diluted $ (0.29 ) $ (0.30 ) $ (0.54 ) $ (0.61 ) Weighted average common shares outstanding - basic and diluted 52,924,078 39,445,268 52,180,077 38,810,985
(unaudited) Condensed Consolidated Statements of Changes in Equity
(In thousands)
(Unaudited)
For the Six Months Ended December 31, 2021 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid In | Accumulated | ||||||||||||||||||
Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
Balance, June 30, 2021 | 51,236 | $ | 51 | $ | 265,130 | $ | (147,771 | ) | $ | 117,410 | ||||||||||
Common stock issued for cash, net of issuance costs | 556 | 1 | 5,431 | — | 5,432 | |||||||||||||||
Stock-based compensation | 237 | — | 2,348 | — | 2,348 | |||||||||||||||
Common stock issued for exercise of warrants | 4 | — | 24 | — | 24 | |||||||||||||||
Common stock issued for exercise of options | 5 | — | 33 | — | 33 | |||||||||||||||
Net loss | — | — | — | (12,849 | ) | (12,849 | ) | |||||||||||||
Balance, September 30, 2021 | 52,038 | $ | 52 | $ | 272,966 | $ | (160,620 | ) | $ | 112,398 |
Additional | ||||||||||||||||||||||||
Common Stock | Paid In | Accumulated | Noncontrolling | |||||||||||||||||||||
Shares | Par Value | Capital | Deficit | Interest | Equity | |||||||||||||||||||
Balance, September 30, 2021 | 52,038 | $ | 52 | $ | 272,966 | $ | (160,620 | ) | $ | — | $ | 112,398 | ||||||||||||
Common stock issued for cash, net of issuance costs | 1,931 | 2 | 13,355 | — | — | 13,357 | ||||||||||||||||||
Stock-based compensation | 356 | — | 2,900 | — | — | 2,900 | ||||||||||||||||||
Common stock issued for exercise of warrants | 4 | — | 33 | — | — | 33 | ||||||||||||||||||
Common stock issued for exercise of options | 15 | — | 107 | — | — | 107 | ||||||||||||||||||
ESPP purchase | 53 | 1 | 311 | — | — | 312 | ||||||||||||||||||
Common stock issued in acquisition | 263 | — | 2,297 | — | — | 2,297 | ||||||||||||||||||
Noncontrolling interest acquired | — | — | — | — | 7,510 | 7,510 | ||||||||||||||||||
Net loss | — | — | — | (15,264 | ) | 18 | (15,246 | ) | ||||||||||||||||
Balance, December 31, 2021 | 54,660 | $ | 55 | $ | 291,969 | $ | (175,884 | ) | $ | 7,528 | $ | 123,668 |
For the Three Months Ended December 31, 2017 | For the Three Months Ended December 31, 2016 | For the Six Months Ended December 31, 2017 | For the Six Months Ended December 31, 2016 | |||||||||||||
Revenue | $ | 444,553 | $ | 159,068 | $ | 745,493 | $ | 159,068 | ||||||||
Cost of revenue | 329,836 | — | 523,065 | — | ||||||||||||
Gross profit | 114,717 | 159,068 | 222,428 | 159,068 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 3,473,031 | 775,984 | 6,477,396 | 1,428,560 | ||||||||||||
General and administrative expenses | 2,189,904 | 2,066,768 | 4,022,526 | 3,330,011 | ||||||||||||
Total operating expenses | 5,662,935 | 2,842,752 | 10,499,922 | 4,758,571 | ||||||||||||
Loss from operations | (5,548,218 | ) | (2,683,684 | ) | (10,277,494 | ) | (4,599,503 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest income | 263 | 209 | 997 | 299 | ||||||||||||
Rental income | 86,844 | — | 172,188 | — | ||||||||||||
Change in fair value of contingent real estate liability | (79,305 | ) | — | (79,305 | ) | — | ||||||||||
Change in fair value of derivative liabilities | — | (712,246 | ) | — | (869,462 | ) | ||||||||||
Total other income (expense) | 7,802 | (712,037 | ) | 93,880 | (869,163 | ) | ||||||||||
Net loss | $ | (5,540,416 | ) | $ | (3,395,721 | ) | $ | (10,183,614 | ) | $ | (5,468,666 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.27 | ) | $ | (0.21 | ) | $ | (0.52 | ) | $ | (0.35 | ) | ||||
Weighted average common shares outstanding -basic and diluted | 20,167,681 | 15,892,503 | 19,667,770 | 15,797,106 |
See accompanying notes to the condensed consolidated financial statements.
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In thousands)
(Unaudited)
For the Six Months Ended December 31, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid In | Accumulated | ||||||||||||||||||
Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
Balance, June 30, 2020 | 37,990 | $ | 38 | $ | 145,072 | $ | (103,615 | ) | $ | 41,495 | ||||||||||
Stock-based compensation | 127 | — | 2,027 | — | 2,027 | |||||||||||||||
Common stock issued for exercise of options | 18 | — | 102 | — | 102 | |||||||||||||||
Common stock issued for cash, net of issuance costs | 416 | — | 3,267 | — | 3,267 | |||||||||||||||
Common stock issued in payment of note interest | 31 | 1 | 243 | — | 244 | |||||||||||||||
Net loss | — | — | — | (11,950 | ) | (11,950 | ) | |||||||||||||
Balance, September 30, 2020 | 38,582 | $ | 39 | $ | 150,711 | $ | (115,565 | ) | $ | 35,185 |
Additional | ||||||||||||||||||||
Common Stock | Paid In | Accumulated | ||||||||||||||||||
Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||
Balance, September 30, 2020 | 38,582 | $ | 39 | $ | 150,711 | $ | (115,565 | ) | $ | 35,185 | ||||||||||
Common stock issued for cash, net of issuance costs | 2,296 | 2 | 20,153 | — | 20,155 | |||||||||||||||
Stock-based compensation | 350 | — | 2,066 | — | 2,066 | |||||||||||||||
Common stock issued for exercise of warrants | 33 | — | 118 | — | 118 | |||||||||||||||
Common stock issued for exercise of options | 73 | — | 422 | — | 422 | |||||||||||||||
ESPP purchase | 32 | — | 204 | — | 204 | |||||||||||||||
Common stock issued in payment of note interest | 33 | — | 244 | — | 244 | |||||||||||||||
Net loss | — | — | — | (11,910 | ) | (11,910 | ) | |||||||||||||
Balance, December 31, 2020 | 41,399 | $ | 41 | $ | 173,918 | $ | (127,475 | ) | $ | 46,484 |
See accompanying notes to the condensed consolidated financial statements.
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(Unaudited)
Six Months Ended December 31, 2021 | Six Months Ended December 31, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (28,095 | ) | $ | (23,860 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 3,174 | 2,080 | ||||||
Stock-based compensation | 5,248 | 4,093 | ||||||
Amortization of debt discount | — | 2,346 | ||||||
Amortization of operating lease right of use asset | 130 | 110 | ||||||
Non cash interest payments | — | 488 | ||||||
Change in fair value of derivative liabilities | — | 184 | ||||||
Gain on disposal of fixed assets | (194 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (349 | ) | (395 | ) | ||||
Inventory | (698 | ) | (515 | ) | ||||
Other current assets | (832 | ) | (443 | ) | ||||
Accounts payable and accrued expenses | (1,611 | ) | (204 | ) | ||||
Lease liabilities | (135 | ) | (111 | ) | ||||
Deferred revenue | (176 | ) | 57 | |||||
Net Cash Used in Operating Activities | (23,538 | ) | (16,170 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for machinery and equipment | (12,823 | ) | (4,438 | ) | ||||
Acquisition of business, net of cash acquired | (4,079 | ) | — | |||||
Cash received from sale of fixed assets | 287 | — | ||||||
Cash paid for intangibles | — | (53 | ) | |||||
Net Cash Used in Investing Activities | (16,615 | ) | (4,491 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock | 18,789 | 23,192 | ||||||
Proceeds from exercise of employee stock options | 140 | 524 | ||||||
Proceeds from exercise of warrants | 57 | 118 | ||||||
Proceeds from employee stock purchase plan | 312 | 204 | ||||||
Net Cash Provided by Financing Activities | 19,298 | 24,038 | ||||||
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (20,855 | ) | 3,377 | |||||
Cash, Cash Equivalents and Restricted Cash - Beginning of Period | 88,322 | 44,408 | ||||||
Cash, Cash Equivalents and Restricted Cash - End of Period | $ | 67,467 | $ | 47,785 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Period for: | ||||||||
Interest | — | 325 | ||||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued in payment of interest | — | 488 | ||||||
Fixed assets included in accounts payable and accrued expenses | (223 | ) | 572 | |||||
Acquisition of Business | ||||||||
Tangible assets, excluding cash and cash equivalents | 1,346 | — | ||||||
Intangibles | 9,711 | — | ||||||
Goodwill | 7,835 | — | ||||||
Deferred tax liability | (2,039 | ) | — | |||||
Contingent consideration | (1,082 | ) | — | |||||
Liabilities assumed | (1,885 | ) | — | |||||
Issuance of common stock for acquisition | (2,297 | ) | — | |||||
Noncontrolling interest | (7,510 | ) | — |
See accompanying notes to the condensed consolidated financial statements
Akoustis Technologies, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Six Months Ended December 31, 2017
(unaudited)
Common Stock | Additional | |||||||||||||||||||
Shares | Amount | Paid In Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||
Balance, July 1, 2017 | 19,075,050 | $ | 19,075 | $ | 31,499,889 | $ | (16,508,057 | ) | $ | 15,010,907 | ||||||||||
Common stock issued for cash, net of issuance costs | 3,183,269 | 3,183 | 13,254,880 | — | 13,258,063 | |||||||||||||||
Warrants issued to underwriter | — | — | (645,757 | ) | — | (645,757 | ) | |||||||||||||
Common stock issued for services | 111,000 | 111 | 2,580,711 | — | 2,580,822 | |||||||||||||||
Common stock issued for exercise of warrants | 9,533 | 10 | 47,655 | — | 47,665 | |||||||||||||||
Vesting of restricted shares | — | — | (137,779 | ) | — | (137,779 | ) | |||||||||||||
Repurchase of Common Shares | (58,152) | (58 | ) | 58 | — | — | ||||||||||||||
Net loss for the six months ended December 31, 2017 | — | — | — | (10,183,614 | ) | (10,183,614 | ) | |||||||||||||
Balance, December 31, 2017 | 22,320,700 | 22,321 | 46,599,657 | (26,691,671 | ) | 19,930,307 |
See accompanying notes to the condensed consolidated financial statements
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Six Months Ended | For the Six Months Ended | |||||||
December 31, 2017 | December 31, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (10,183,614 | ) | $ | (5,468,666 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 470,419 | 25,834 | ||||||
Amortization of intangibles | 8,076 | 3,112 | ||||||
Share-based compensation | 2,076,829 | 2,247,862 | ||||||
Change in fair value of derivative liabilities | — | 869,462 | ||||||
Change in fair value of contingent liability | 79,305 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (298,797 | ) | (29,000 | ) | ||||
Inventory | 113,497 | 359 | ||||||
Prepaid expenses | (23,850 | ) | (38,431 | ) | ||||
Deposits | 259 | — | ||||||
Other assets | (22,146 | ) | (10,000 | ) | ||||
Accounts payable and accrued expenses | 982,729 | 244,109 | ||||||
Deferred revenue | 62,947 | 29,000 | ||||||
Net Cash Used In Operating Activities | (6,734,346 | ) | (2,126,359 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Cash paid for property and equipment | (4,471,121 | ) | (444,429 | ) | ||||
Cash paid for intangibles | (33,250 | ) | (39,650 | ) | ||||
Net Cash Used In Investing Activities | (4,504,371 | ) | (484,079 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the issuance of common stock | 13,258,063 | 3,456,460 | ||||||
Proceeds from exercise of warrants | 47,665 | — | ||||||
Net Cash Provided By Financing Activities | 13,305,728 | 3,456,460 | ||||||
Net Increase in Cash | 2,067,011 | 846,022 | ||||||
Cash - Beginning of Period | 9,631,520 | 4,155,444 | ||||||
Cash - End of Period | $ | 11,698,531 | $ | 5,001,466 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the Period for: | ||||||||
Income taxes | $ | — | $ | — | ||||
Interest | $ | 199 | $ | — | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Stock compensation payable | $ | 266,248 | $ | 208,699 | ||||
Warrants issued for stock issuance costs | $ | 645,757 | $ | 107,432 | ||||
Reclassification of derivative liability to additional paid in capital | $ | — | $ | 1,795,363 | ||||
Accrued capital expenditures | $ | 428,691 | $ | — |
See accompanying notes to the condensed consolidated financial statements
AKOUSTIS TECHNOLOGIES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
December 31, 2017
Note 1. Organization
Akoustis Technologies, Inc. (formerly known as Danlax, Corp.) (“the Company”(the “Company”) was incorporated under the laws of the State of Nevada, U.S. on April 10, 2013. Effective2013, and effective December 15, 2016, the Company changed its state of incorporation from the State of Nevada to the State of Delaware. Through its subsidiaries,wholly-owned subsidiary, Akoustis, Inc. and Akoustis Manufacturing New York, Inc. (each a(a Delaware corporation), the Company, headquartered in Huntersville, North Carolina, is focused on developing, designing, and manufacturing innovative radio frequency (“RF”) filter products for the mobile wireless device industry. The mission ofindustry, including for products such as smartphones and tablets, cellular infrastructure equipment, Wi-Fi Customer Premise Equipment (“CPE”), and military and defense communication applications. Located between the device’s antenna and its digital backend, the RF front-end (“RFFE”) is the circuitry that performs the analog signal processing and contains components such as amplifiers, filters and switches. To construct the resonator devices that are the building blocks for its RF filters, the Company is to commercialize and manufacture its patented BulkONE®has developed a family of novel, high purity acoustic wave technology to address the critical frequency-selectivity requirements in today’s mobile smartphones and other wireless devices - improving the efficiency and signal quality and helping enable the Internet of Things.
The Company is listed on the Nasdaq Capital Market, effective as of March 13, 2017, under the symbol AKTS.
Acquisition of Assets
On June 26, 2017, pursuant to a Definitive Asset Purchase Agreement and Definitive Real Property Purchase Agreement (collectively, the “Agreements”) with The Research Foundation for the State University of New York (“RF-SUNY”) and Fuller Road Management Corporation (“FRMC”), an affiliate of RF-SUNY, respectively, the Company completed the acquisition of certain specified assets, including STC-MEMS, a semiconductor wafer-manufacturing operation and microelectromechanical systems (“MEMS”) business with associated wafer-manufacturing tools,piezoelectric materials as well as the real estatea unique microelectromechanical system (“MEMS”) wafer process, collectively referred to as XBAWTM technology. The Company leverages its integrated device manufacturing (“IDM”) business model to develop and improvements associated with the facility locatedsell high performance RF filters using its XBAWTM technology. Filters are critical in Canandaigua, New York, which is usedselecting and rejecting signals, and their performance enables differentiation in the operation of STC-MEMS (the assets and real estate and improvements referred to together herein asmodules defining the “STC-MEMS Business”), which was created in 2010 by RF-SUNY to form a vertically integrated “one-stop-shop” in smart system and smart-device innovation and manufacturing. The facility was designed to provide its customersRFFE. In October 2021, the capacity, infrastructure and operational capabilities in all areas of semiconductor and advanced manufacturing, while covering a diverse number of markets including aerospace, biomedical, communications, defense, and energy. The Company also agreed to assume substantially all the on-going obligations of the STC-MEMS Business incurred in the ordinary course of business including with respect to the 29 employees employed by RF-SUNY.
The Company acquired the STC-MEMS Business through its wholly-owned subsidiary, Akoustis Manufacturing New York,a 51% ownership interest in RFM Integrated Device, Inc., (“Akoustis NY”RFMi”), a Delaware corporation.
See Note 4 for a detailed descriptionfabless supplier of acoustic wave RF resonators and filters. Through RFMi, the transaction.Company makes sales of surface-acoustic-wave (“SAW”) resonators, RF filters, crystal (Xtal) resonators and oscillators, and ceramic products.
Note 2. Going Concern and Management PlansLiquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2017, the Company had working capital of $9.2 million and an accumulated deficit of $26.7 million. Since inception, the Company has recorded approximately $1,039,000 and $615,000 of revenue from contract research and government grants and engineering review services, respectively. As of February 1, 2018,2021, the Company had cash and cash equivalents of $9.7$67.5 million which theand working capital of $68.3 million. The Company believes ishas historically incurred recurring operating losses and experienced net cash used in operating activities.
The Company expects cash and cash equivalents to be sufficient to fund its current operations intobeyond the first quarternext twelve months from the date of fiscal 2019. As a result,filing of this Form 10-Q. These funds will be used to fund the Company’s operations, including capital expenditures, R&D, commercialization of our technology, development of our patent strategy and expansion of our patent portfolio, as well as to provide working capital and funds for other general corporate purposes. Except for the approximately $7.0 million of common stock remaining available to be sold pursuant to its ATM Equity OfferingSM Sales Agreement, dated May 8, 2020, with BofA Securities, Inc. and Piper Sandler & Co., the Company will needhas no commitments or arrangements to obtain any additional capital to fund operations past that date. The Company is actively managingfunds, and controlling the Company’s cash outflows to mitigate these risks. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
There is no assurance that the Company’s projections and estimates are accurate. The Company’s primary sources of funds for operations since inception have been with contract research and government grants, sales of our equity securities, and debt. The Company needs to obtain additional capital to accomplish its business plan objectives and will continue its efforts to secure additional funds. However, the amount of funds raised, if any, may not be sufficient to enable the Company to attain profitable operations. To the extent that the Company is unsuccessful in obtaining additional financing, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. Therethere can be no assurance that such a planfunds will be successful.
available on acceptable terms or at all. If the Company is unable to obtain additional financing in a timely fashion and on acceptable terms, its financial condition and results of operations may be materially adversely affected and it may not be able to continue operations or execute its stated commercialization plan.
Note 3. Summary of significant accounting policiesSignificant Accounting Policies
Basis of presentationPresentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP.GAAP for annual financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. The Company has evaluated subsequent events through the issuancefiling of these financial statements.this Form 10-Q. Operating results for the six monthsquarter ended December 31, 20172021 are not necessarily indicative of the results that may be expected for the year ending June 30, 20182022 or any future interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on September 20, 2017August 30, 2021 (the “2017“2021 Annual Report”).
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,wholly owned subsidiary, Akoustis, Inc. and Akoustis Manufacturing New York, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revised Prior Period Amounts
The For RFMi, a consolidated entity in which we have 51% of ownership, the Company identified and recorded an out-of-period adjustment relatedrecords net loss (income) attributable to stock-based compensation that should have been recorded innoncontrolling interest on the year ended June 30, 2017. The adjustment was reflected as a $725,000 increase in additional paid in capital and corresponding increase in accumulated deficit. Tabular summariescondensed consolidated statements of operations equal to the percentage of the revisions are presented below:
Consolidated Balance Sheet June 30, 2017 | ||||||||||||
Previously Reported | Revisions | Revised Reported | ||||||||||
Additional paid in capital | $ | 30,774,885 | $ | 725,004 | $ | 31,499,889 | ||||||
Accumulated deficit | (15,783,053 | ) | (725,004 | ) | (16,508,057 | ) |
Consolidated Statement of Operations Year ended June 30, 2017 | ||||||||||||
Previously Reported | Revisions | Revised Reported | ||||||||||
Net loss | $ | (9,108,240 | ) | $ | (725,004 | ) | $ | (9,833,244 | ) | |||
Net loss per ordinary share: | ||||||||||||
Basic | $ | (0.54 | ) | $ | (0.04 | ) | $ | (0.58 | ) |
The Company analyzed the revisions under SEC Staff Accounting Bulletin No. 108 and determined that the revisions are immaterial on a quantitative and qualitative basis and that it is probable that the judgment of a reasonable person relying upon the financial statements would not have been changed or influencedownership interest retained in such entity by the inclusion or correction of the items in the year ended June 30, 2017. Therefore, amendment of the 2017 Annual Report is not considered necessary. However, if the adjustments to correct the errors were recorded in the first quarter of 2018, the Company believes the impact would have been significant to the first quarter and would impact comparisons to prior periods. The Company has also revised in this quarterly report on Form 10-Q the previously reported annual consolidated balance sheet as of June 30, 2017 on Form 10-K for these amounts. The Company will revise comparative prior period amounts prospectively.respective noncontrolling parties.
Significant Accounting Policies and Estimates
The Company’s significant accounting policies are disclosed in NoteNote. 3-Summary of Significant Accounting Policies in the 20172021 Annual Report. Since the date of the 20172021 Annual Report, there have been no material changes to the Company’s significant accounting policies. The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes thereto. TheseThe policies, estimates and assumptions include valuing equity securities, and derivative financial instruments issued in financing transactions, deferred taxes and related valuation allowances, contingent real estate liabilityconsideration, goodwill, intangible assets, initial fair value of the non-controlling interest, revenue recognition, and the fair values of long livedlong-lived assets. Actual results could differ from the estimates.
Accounts ReceivableBusiness Combinations - Business combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any noncontrolling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Transaction costs are expensed in a business combination.
Allowance for Doubtful Accounts
Trade accounts receivable are stated net of allowances for doubtful accounts. Management estimates the
The Company provides an allowance for doubtful accounts based on review and analysis of specific customer balances that may notequal to the estimated losses to be collectible, customer payment history and any other customer-specific information that may impact ability to collect the receivable. Accounts are considered for write-off when they become past due and when it is determined that the probability of collection is remote. There was no allowance for doubtful accounts at December 31, 2017.
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740,Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax lawsincurred in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%, which will result in a reduction in our effective tax rate from approximately 36.64% to 24.16% for the fiscal year ending June 30, 2018. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. Deferred tax assetscollection of approximately $9.5 million were revalued to approximately $6.2 million with a corresponding decrease to the Company’s valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending June 30, 2018, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements. Because the Act became effective mid-way through the Company’s tax year, the Company will have a federal statutory income tax rate of approximately 28% for the fiscal year ending June 30, 2018 and will have an approximate 21% statutory income tax rate for fiscal years thereafter.accounts receivable.
Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and six months ended December 31, 2017 and 2016 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at December 31, 2017 and 2016:
December 31, 2017 | December 31, 2016 | |||||||
Options | 1,166,859 | 160,000 | ||||||
Warrants | 756,809 | 510,597 | ||||||
Totals | 1,923,668 | 670,597 |
Shares Outstanding
Shares outstanding include shares of restricted stock with respect to which restrictions have not lapsed. Restricted stock included in reportable shares outstanding was 1,023,506 shares and 1,822,055 shares as of December 31, 2017 and 2016, respectively. Shares of restricted stock are included in the calculation of weighted average shares outstanding.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation. The reclassifications did not have an impact on net loss as previously reported.
Recently Issued Accounting Pronouncements
In September 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-13,Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).The new standards, among other things, provide additional implementation guidance with respect to Accounting Standards Codification (ASC) Topic 606 and ASC Topic 842. ASU 2017-13 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the new standard, but does not expect it to have a material impact on its implementation strategies or its consolidated financial statements upon adoption.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
Note 4. AcquisitionRevenue Recognition from Contracts with Customers
Disaggregation of Revenue
The Company’s primary revenue streams include foundry fabrication services and product sales.
Foundry Fabrication Services
Foundry fabrication services revenue includes Non-Recurring Engineering (“NRE”) and microelectromechanical systems (“MEMS”) foundry services. Under these contracts, products are delivered to the customer at the completion of the STC-MEMS Business
On March 23, 2017,service which represents satisfaction of the Company entered into the Agreements with RF-SUNY, a New York State education corporation, on behalf of The State University of New York Polytechnic Institute, and FRMC, an affiliate of RF-SUNY to acquire the STC- MEMS Business. The acquisition allows the Company to internalize manufacturing, increase capacity and control its wafer supply chain for single crystal bulk acoustic wave (“BAW”) radio frequency (“RF”) filters. The Company will utilize the NY facility to consolidate all aspects of wafer manufacturing for its high-band RF filters.
The STC-MEM’s Business was created in 2010 by RF-SUNY to form a vertically integrated “one-stop-shop” in smart system and smart-device innovation and manufacturing. The facility was designed to provide its customers the capacity, infrastructure and operational capabilities in all areas of semiconductor and advanced manufacturing, while covering a diverse number of markets including aerospace, biomedical, communications, defense, and energy. Located in Canandaigua, New York, just outside of Rochester, the STC-MEMS facility includes certified cleanroom manufacturing, advanced test and metrology,performance obligation as well as transfer of title. Depending on language with regards to enforceable right to payment for performance completed to date, related revenue will either be recognized over time or at a MEMSpoint in time.
Product Sales
Product sales revenue consists of sales of RF filters and optoelectronic packaging facility.amps which are sold with contract terms stating that title passes, and the customer takes control at the time of shipment. Revenue is then recognized when the devices are shipped, and the performance obligation has been satisfied. If devices are sold under contract terms that specify that the customer does not take ownership until the goods are received, revenue is recognized when the customer receives the goods.
The following table summarizes the revenues of the Company’s reportable segments for the three months ended December 31, 2021 (in thousands):
Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
NRE | $ | 383 | $ | — | $ | 383 | ||||||
Filters/Amps | — | 3,289 | 3,289 | |||||||||
Total | $ | 383 | $ | 3,289 | $ | 3,672 |
The following table summarizes the revenues of the Company’s reportable segments for the six months ended December 31, 2021 (in thousands):
Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
NRE | $ | 796 | $ | — | $ | 796 | ||||||
Filters/Amps | — | 4,744 | 4,744 | |||||||||
Total | $ | 796 | $ | 4,744 | $ | 5,540 |
The following table summarizes the revenues of the Company’s reportable segments for the three months ended December 31, 2020 (in thousands):
Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
NRE - RF Filters | $ | 670 | $ | — | $ | 670 | ||||||
Filters/Amps | — | 638 | 638 | |||||||||
Total | $ | 670 | $ | 638 | $ | 1,308 |
The following table summarizes the revenues of the Company’s reportable segments for the six months ended December 31, 2020 (in thousands):
Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
NRE - RF Filters | $ | 727 | $ | — | $ | 727 | ||||||
Filters/Amps | — | 1,217 | 1,217 | |||||||||
Total | $ | 727 | $ | 1,217 | $ | 1,944 |
Performance Obligations
The Company has determined that contracts for product sales revenue and foundry fabrication services revenue involve one performance obligation, which is delivery of the final product.
Contract Balances
The following table summarizes the changes in the opening and closing balances of the Company’s contract asset and liability for the first six months of fiscal years 2022 and 2021 (in thousands):
Contract Assets | Contract Liability | |||||||
Balance, June 30, 2021 | $ | 411 | $ | 41 | ||||
Closing, December 31, 2021 | 823 | 101 | ||||||
Increase/(Decrease) | $ | 412 | $ | 60 | ||||
Balance, June 30, 2020 | $ | 125 | $ | — | ||||
Closing, December 31, 2020 | 383 | 57 | ||||||
Increase/(Decrease) | $ | 258 | $ | 57 |
The Company acquiredrecords a receivable when the STC-MEMS Business through Akoustis NY.title for goods has transferred. Generally, all sales are contract sales (with either an underlying contract or purchase order), resulting in all receivables being contract receivables. When invoicing occurs prior to revenue recognition a contract liability is recorded (as deferred revenue on the Condensed Consolidated Balance Sheets). The Company also agreedamount of revenue recognized in the six months ended December 31, 2021 that was included in the opening contract liability balance was $41 thousand which related to assume substantially allnon-recurring engineering services.
Contract assets are recorded when revenue recognized exceeds the on-going obligationsamount invoiced. The difference between the opening and closing balances of the STC-MEMS Business incurredCompany’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The amount of contract assets invoiced in the ordinary coursesix months ended December 31, 2021 that was included in the opening contract asset balance was $293 thousand, which primarily related to non-recurring engineering services.
Backlog of business, including with respectRemaining Customer Performance Obligations
Revenue expected to be recognized and recorded as sales during this fiscal year from the 29 employees employed by RF-SUNY. The acquisition closed on June 26, 2017.backlog of performance obligations that are unsatisfied (or partially unsatisfied) was $5.4 million at December 31, 2021.
Note 5: Inventory
The purchase price paid forInventory is stated at the transaction was an aggregatelower of approximately $4.58 million consisting of (i) $2.75 million in cash consideration, (ii) $96,000 in inventory, and (iii) a contingent real estate liability of approximately $1.73 million.cost or net realizable value using the first-in, first-out (FIFO) valuation method.
The following presents the unaudited pro-forma combined results of operations of the Company with the STC-MEMS Business as if the entities were combined on July 1, 2016.
For the Three Months Ended December 31, | For the Six Months Ended December 31, | |||||||
2016 | 2016 | |||||||
Revenue | $ | 817,673 | $ | 1,288,485 | ||||
Net loss | $ | (4,139,503 | ) | $ | (7,314,370 | ) | ||
Net loss per common share | $ | (0.26 | ) | $ | (0.46 | ) | ||
Weighted average common shares outstanding | 15,892,503 | 15,797,106 |
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of July 1, 2016 or to project potential operating results as of any future date or for any future periods.
Note 5. Property and equipment
Property and equipmentInventory consisted of the following as of December 31, 20172021 and June 30, 2017:2021 (in thousands):
Estimated Useful Life | December 31, 2017 | June 30, 2017 | ||||||||
Land | n/a | $ | 1,000,000 | $ | 1,000,000 | |||||
Research and development equipment | 3 - 10 years | 6,510,343 | 1,851,427 | |||||||
Computer equipment | 5 years | 69,642 | 16,783 | |||||||
Furniture and fixtures | 5 - 10 years | 3,725 | 3,725 | |||||||
STC-MEMS equipment | 3 - 5 years | 2,120,868 | 2,124,650 | |||||||
Building | 11 years | 3,191,819 | 3,000,000 | |||||||
Leasehold improvements | * | 3,240 | 3,240 | |||||||
12,899,637 | 7,999,825 | |||||||||
Less: Accumulated depreciation | (616,430 | ) | (146,011 | ) | ||||||
Total | $ | 12,283,207 | $ | 7,853,814 |
December 31, 2021 | June 30, 2021 | |||||||
Raw Materials | $ | 858 | $ | 124 | ||||
Work in Process | 718 | 1,188 | ||||||
Finished Goods | 710 | 78 | ||||||
Total Inventory | $ | 2,286 | $ | 1,390 |
Note 6. Property and Equipment, net
(*) Amortized on a straight-line basis over the term
Property and equipment, net consisted of the lease or the estimated useful lives, whichever is shorter.following as of December 31, 2021 and June 30, 2021 (in thousands):
Estimated Useful Life | December 31, 2021 | June 30, 2021 | ||||||||
Land | n/a | $ | 1,000 | $ | 1,000 | |||||
Building | 11 years | 3,000 | 3,000 | |||||||
Equipment | 2-10 years | 45,033 | 35,120 | |||||||
Leasehold Improvements | * | 3,598 | 1,946 | |||||||
Software | 3 years | 617 | 580 | |||||||
Furniture & Fixtures | 5 years | 80 | 73 | |||||||
Computer Equipment | 3 years | 642 | 310 | |||||||
Total | 53,970 | 42,029 | ||||||||
Less: Accumulated Depreciation | (13,722 | ) | (11,299 | ) | ||||||
Total | $ | 40,248 | $ | 30,730 |
(*) | Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. |
The Company recorded depreciation expense of $237,109$1.6 million and $12,949$1.1 million for the three months ended December 31, 20172021 and 2016,2020, respectively.
The Company recorded depreciation expense of $470,419$3.1 million and $25,834$2.1 million for the six months ended December 31, 20172021 and 2016,2020, respectively.
As of December 31, 2017, research and development fixed assets2021, equipment with a net book value totaling $5,386,457 were$11.7 million had not been placed in service and therefore was not depreciated during the period. As of June 30, 2021, fixed assets with a net book value totaling $4.9 million had not been placed in service and therefore was not depreciated during the period.
Note 6. Intangible assets7. Business Acquisition
On October 15, 2021, the Company acquired a majority ownership position in RFM Integrated Device, Inc. (“RFMi”), a fabless supplier of acoustic wave RF resonators and filters, to expand product offerings and provide access to new markets. The Company acquired a 51% ownership interest in RFMi from Tai-Saw Technology Co., Ltd. (“TST”) in exchange for $6.0 million in cash and approximately $2.5 million payable in common stock of the Company. The Company has the option to acquire the remaining 49% ownership interest in RFMi from TST on or before June 30, 2022, for an additional $3.5 million in cash and approximately $4.0 million in unregistered shares of common stock of the Company.
Additionally, earn-out payments payable in cash and/or shares of common stock of the Company may be payable to TST based on the achievement of sales targets for RFMi products in each of calendar year 2022 and 2023, with potential payouts in the range of $0 to $3.0 million. The estimated fair value of the associated liability was based on the present value of the expected future payouts resulting from the projected RFMi product sales, applying a volatility rate of 30% against those future projected revenues and, using a discount rate of 9.9% and 10.2% for the first and second earnouts, respectively, and thus represented a Level 3 fair value measurement. The contingent consideration is re-measured to fair value at each reporting date until the contingency is resolved, and those changes in fair value are recognized in earnings. There have been no material changes in the fair value of the contingent consideration at December 31, 2021 since the acquisition date.
The Company’spurchase price was preliminarily allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
Consideration: | ||||
Cash paid | $ | 6,000 | ||
Common stock | 2,297 | |||
Fair value of contingent consideration | 1,082 | |||
Total consideration | $ | 9,379 | ||
Cash | $ | 1,921 | ||
Other tangible assets | 1,346 | |||
Intangible assets | 9,711 | |||
Goodwill | 7,835 | |||
Liabilities assumed | (1,885 | ) | ||
Deferred tax liability | $ | (2,039 | ) | |
Total assets acquired | $ | 16,889 | ||
Noncontrolling interest | (7,510 | ) | ||
Net assets acquired | $ | 9,379 |
The Company will continue to evaluate the fair market value and other estimates of certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date) as provided for in ASC 805-10.
The provisional values of the intangible assets acquired included trademarks of $1.6 million, developed technology of $1.2 million and customer relationships of $6.9 million.
The fair value of the trademarks acquired was determined based on an income approach using the “relief-from-royalty” method which estimated the value of the intangible asset by discounting the future cash flows of the asset to present value. Key inputs include a royalty rate of 3% and a discount rate of 19.5% as of the valuation date. The acquired trademarks assets are being amortized on a straight-line basis over their estimated useful lives of five years.
The fair value of the developed technology acquired was determined based on an income approach using the “relief-from-royalty” method which estimated the value of the intangible asset by discounting the future cash flows of the asset to present value. Key inputs include a royalty rate of 4% and a discount rate of 19.5% as of the valuation date. The acquired developed technology assets are being amortized on a straight-line basis over their estimated useful lives of seven years.
The fair value of the customer relationships acquired was determined based on an income approach using the “multi-period excess earnings” method in which the value of the intangible asset is determined by discounting the future cash flows of the asset to present value. Key inputs include a discount rate of 19.5%, an attrition rate of 5% and an operating expense adjustment factor of 5% as of the valuation date. These customer relationships are being amortized on a straight-line basis over their estimated useful life of seven years.
The fair value of the noncontrolling interest was determined by applying a lack of control discount of 16.7% to the implied fair value based on the total consideration paid for the 51% ownership.
The goodwill resulting from the acquisition of RFMi, which has been recorded in the RF Product segment, is attributed to synergies and other benefits that are expected to be generated from this transaction and is not deductible for income tax purposes. During the three and six months ended December 31, 2021, the Company recorded acquisition costs associated with the acquisition of RFMi totaling $0.1 million in “General and administrative expenses” in the Condensed Consolidated Statements of Operations.
Pro Forma Results
The following unaudited pro forma financial information summarizes the revenues for the three and six months ended December 31, 2021 and 2020, as if the acquisition had been completed as of July 1, 2020 (in thousands). The unaudited pro forma information does not purport to be indicative of the results that would have been obtained if the acquisitions had actually occurred at the beginning of the year prior to acquisition, nor of the results that may be reported in the future. Pro-forma earnings were not materially different from reported results for the periods presented and thus have not been included.
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
Revenues | $ | 3,735 | $ | 2,175 | $ | 7,417 | $ | 3,541 |
Note 8: Goodwill and Intangible Assets
Intangible assets consisted of the following:following as of December 31, 2021 (in thousands):
Estimated useful life | December 31, 2017 | June 30, 2017 | ||||||||
Patents | 15 years | $ | 168,541 | $ | 135,291 | |||||
Customer relationships | 14 years | 81,773 | 81,773 | |||||||
Less: Accumulated amortization | (20,173 | ) | (12,097 | ) | ||||||
Subtotal | 230,141 | 204,967 | ||||||||
Trademarks | 1,560 | 1,560 | ||||||||
Intangible assets, net | $ | 231,701 | $ | 206,527 |
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Useful Life in Years | |||||||||||||
Goodwill | $ | 7,835 | $ | — | $ | 7,835 | indefinite | |||||||||
Trademarks | $ | 1,569 | $ | (16 | ) | $ | 1,553 | 5 | ||||||||
Developed Technology | $ | 1,847 | $ | (88 | ) | $ | 1,759 | 10 | ||||||||
Customer Relationships | $ | 6,927 | $ | (72 | ) | $ | 6,855 | 7 | ||||||||
Total | $ | 18,178 | $ | (176 | ) | $ | 18,002 |
The Company recorded amortizationIntangible assets consisted of the following as of June 30, 2021 (in thousands):
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Useful Life in Years | |||||||||||||
Developed Technology | $ | 634 | $ | (62 | ) | $ | 572 | 15 |
Amortization expense of $4,161 and $1,762totaled $108 thousand for the three months ended December 31, 20172021 and 2016, respectively.
The Company recorded amortization expense of $8,076 and $3,112$115 thousand for the six months ended December 31, 2017 and 2016, respectively.
The following table outlines estimated2021. Estimated future annual amortization expense of intangible assets for each of the next five fiscal years and thereafter:thereafter are as follows (in thousands):
December 31, | ||||
2018 | $ | 17,077 | ||
2019 | 17,077 | |||
2020 | 17,077 | |||
2021 | 17,077 | |||
2022 | 17,077 | |||
Thereafter | 144,756 | |||
$ | 230,141 |
2022 | $ | 966 | ||
2023 | $ | 1,519 | ||
2024 | $ | 1,519 | ||
2025 | $ | 1,519 | ||
2026 | $ | 1,519 | ||
Thereafter | $ | 3,125 | ||
Total | $ | 10,167 |
Note 7.9. Accounts payablePayable and accrued expensesAccrued Expenses
Accounts payable and accrued expenses consisted of the following at December 31, 20172021 and June 30, 2017:2021 (in thousands):
December 31, 2017 | June 30, 2017 | |||||||
Accounts payable | $ | 1,054,169 | $ | 494,515 | ||||
Accrued salaries and benefits | 141,020 | 274,050 | ||||||
Accrued bonuses | 362,589 | — | ||||||
Accrued stock-based compensation | 678,116 | 399,157 | ||||||
Accrued capital expenditures | 428,691 | — | ||||||
Other accrued expenses | 362,746 | 168,646 | ||||||
Totals | $ | 3,027,331 | $ | 1,336,368 |
December 31, 2021 | June 30, 2021 | |||||||
Accounts payable | $ | 1,818 | $ | 1,188 | ||||
Accrued salaries and benefits | 2,639 | 4,415 | ||||||
Accrued professional fees | 226 | 49 | ||||||
Accrued utilities | 131 | 127 | ||||||
Accrued goods received not invoiced | 1,404 | 761 | ||||||
Other accrued expenses | 502 | 414 | ||||||
Totals | $ | 6,720 | $ | 6,954 |
Note 10. Concentrations
Note 8. Derivative Liabilities
Vendors
Upon closing of the private placements on May 22, 2015 and June 9, 2015, the Company issued 298,551 and 26,099 warrants, respectively, to purchase the same number of shares of common stock with an exercise price of $1.50 and a five-year term to the placement agent. Upon closing of a private placement in April 2016, the Company issued 153,713 warrants to purchase the same number of shares of common stock with an exercise price of $1.60 and a five-year term to the placement agent. The Company identified certain put features embedded in the warrants that potentially could result in a net cash settlement, requiring the Company to classify the warrantsVendor concentration as a derivative liability.
During the year ended June 30, 2017, the Company amended the warrant agreements to eliminate the derivative feature. Upon executionpercentage of the revised agreements, a total of 471,697 warrants with a fair value of $2,200,219 were reclassified from liability to equity.
Duringpurchases for the three months ended December 31, 20172021 and 2016,2020 are as follows:
Three Months 12/31/2021 | Three Months 12/31/2020 | |||||||
Vendor 1 | - | 13 | % | |||||
Vendor 2 | 17 | % | - |
Customers
Customer concentration as a percentage of revenue for the three months ended December 31, 2021 and 2020 are as follows:
Three Months 12/31/2021 | Three Months 12/31/2020 | |||||||
Customer 1 | - | 18 | % | |||||
Customer 2 | 22 | % | 29 | % | ||||
Customer 3 | - | 32 | % | |||||
Customer 4 | - | 15 | % |
Customer concentration as a percentage of revenue for the six months ended December 31, 2021 and 2020 are as follows:
Six Months 12/31/2021 | Six Months 12/31/2020 | |||||||
Customer 1 | - | 22 | % | |||||
Customer 2 | - | 10 | % | |||||
Customer 3 | 27 | % | 44 | % | ||||
Customer 4 | - | 12 | % |
Note 11. Equity
Equity Offering Program
The Company has in place an ATM Equity OfferingSM Sales Agreement with BofA Securities, Inc. and Piper Sandler & Co. (the “Sales Agreement”), pursuant to which the Company markedmay sell from time-to-time shares of its common stock having an aggregate offering price of up to $100 million (the “Equity Offering Program”). As of December 31, 2021, the derivative featureCompany had sold an aggregate of $93.0 million of its shares in the warrants to fair value and recorded a loss of $0 and $712,246, respectively, relating toEquity Offering Program.
The following table summarizes sales through the change in fair value.Equity Offering Program during the six months ended December 31, 2021:
Three months ended | Avg price per share | Number of Shares | Gross Proceeds (in millions) | Offering Expenses (in millions) | Net Proceeds (in millions) | |||||||||||||||
September 30, 2021 | $ | 9.99 | 555,455 | $ | 5.5 | $ | 0.1 | $ | 5.4 | |||||||||||
December 31, 2021 | $ | 7.04 | 1,931,022 | $ | 13.6 | $ | 0.2 | $ | 13.4 | |||||||||||
Total | $ | 7.70 | 2,486,477 | $ | 19.1 | $ | 0.3 | $ | 18.8 |
Equity Incentive Plans
During the six months ended December 31, 2017 and 2016, the Company marked the derivative feature of the warrants to fair value and recorded a loss of $0 and $869,462, respectively, relating to the change in fair value.
Note 9. Concentrations
For the three months ended December 31, 2017, no vendors represented greater than 10% of the Company’s purchases. For the three months ended December 31, 2016, two vendors represented 28% and 14% of the Company’s purchases.
For the six months ended December 31, 2017, no vendors represented greater than 10% of the Company’s purchases. For the six months ended December 31, 2016, two vendors represented 28% and 14% of the Company’s purchases.
Note 10. Stockholders’ Equity
Equity issuances
During the quarter ended December 31, 2017, the Company sold a total of 2,640,819 shares of its common stock at the $5.50 per share for aggregate gross proceeds of $14.5 million before deducting commissions and expenses of approximately $1.2 million. The proceeds of the offering will be used to fund development and commercialization of the Company’s technology, capital expenditures and general corporate expenditures. In addition to the commissions and expenses paid, the Company issued to the placement agents warrants to purchase 154,177 shares of the Company’s common stock. The warrants represent a cost of the offering, have a grant date fair value of $645,757 and are shown as an offset on the consolidated statements of changes in stockholders’ equity.
The fair values of the warrants were estimated at the dates of grant using a binomial option pricing model with the following weighted average assumptions:
During the quarter ended December 31, 2017, the Company also issued 542,450 shares of its common stock to investors in the Company’s private placement offering that closed in May 2017. These issuances were made pursuant to the price-protection provisions granted to such investors in their subscription agreements.
Stock incentive plans
During the six months ended December 31, 2017,2021, the Company granted employees and directors options to purchase 1,006,859an aggregate of approximately 0.6 million shares of common stock. The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
Expected term: The Company’s expected term is based on the period the options are expected to remain outstanding. The Company estimated this amount utilizing the “Simplified Method” in that the Company does not have sufficient historical experience to provide a reasonable basis to estimate an expected term.
Six Months Ended December 31, 2021 | ||||
Exercise price | $ | 6.76 –10.15 | ||
Expected term (years) | 4.75 – 5.00 | |||
Volatility | 66-67 | % | ||
Risk-free interest rate | 0.76%–1.14 | % | ||
Dividend yield | 0 | % | ||
Weighted Average Grant Date Fair Value of Options granted during the period | $ | 5.23 |
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.
Volatility: The Company calculates the expected volatility of the stock price using the historical volatilities of the Company’s common stock traded on the Nasdaq Capital Market.
Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.
The following is a summary of the option activity:
Options | Weighted Average Exercise Price | ||||||||
Outstanding - June 30, 2017 | 160,000 | $ | 1.50 | ||||||
Exercisable - June 30, 2017 | 80,000 | $ | 1.50 | ||||||
Granted | 1,006,859 | 6.74 | |||||||
Exercised | — | — | |||||||
Forfeited/Cancelled | — | — | |||||||
Outstanding – December 31, 2017 | 1,166,859 | $ | 6.02 | ||||||
Exercisable – December 31, 2017 | 80,000 | $ | 1.50 |
As of December 31, 2017, the total intrinsic value of options outstanding and exercisable was $756,800 and $378,400, respectively. As of December 31, 2017, the Company has approximately $3.8 million in unrecognized stock-based compensation expense attributable to the outstanding options, which will be amortized over a period of 2.94 years.
For the three months ended December 31, 2017 and 2016, the Company recorded $466,177 and $7,040, respectively, in stock-based compensation related to stock options, which is reflected in the condensed consolidated statements of operations.
For the six months ended December 31, 2017 and 2016, the Company recorded $484,840 and $14,080, respectively, in stock-based compensation related to stock options, which is reflected in the condensed consolidated statements of operations.
Issuance of restricted shares - employees and consultants
Restricted stock awards are considered outstanding at the time of execution by the Company and the recipient of a restricted stock agreement, as the holders of such restricted stock award are entitled to dividend and voting rights. As of December 31, 2017, the number of shares granted for which the restrictions have not lapsed was 1,023,506 shares.
The Company recognizes the compensation expense for all share-based compensation granted based on the grant date fair value for directors and employees and the reporting period remeasured fair value for consultants. Share-based compensation expense is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The fair value of the award is recorded as share-based compensation expense over the respective restricted period. Any portion of the grant awarded to consultants, directors, employees, and other service providers as to which the repurchase option has not lapsed is accrued on the condensed consolidated balance sheet as a component of accounts payable and accrued expenses. As of December 31, 2017 and June 30, 2017, the accrued stock-based compensation was $678,116 and $399,157, respectively. The Company has the right to repurchase some or all of such shares in certain circumstances upon termination of the recipient’s service with the Company, for up to 60 months from the date of termination (“repurchase option”). The shares as to which the repurchase option has not lapsed are subject to forfeiture upon certain terminations of consulting and employment relationships.
In September 2015, the Company amended the original restricted stock award agreement for certain award recipients. Pursuant to the amendment, 75% of the shares as to which the repurchase option had not lapsed as of September 30, 2015 were released from the repurchase option on the third anniversary of the original effective date of the respective agreements. The remaining 25% of the shares will be released from the repurchase option on the fourth anniversary of the original effective date.
Unvested restricted stock awards granted under the Akoustis, Inc. 2014 Stock Plan (the “2014 Plan”) and the Akoustis Technologies, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) are subject to repurchase options upon certain terminations of the respective recipient’s service with the Company. Under the terms of the respective award agreements, repurchases will generally be made for no value or for par value. In connection with the resignations of two employees, the Company delivered notices to such employees in September 2017, notifying them that the Company would repurchase an aggregate 58,152 shares of restricted stock from them pursuant to the terms of their respective award agreements. The Company completed these repurchases during the second quarter of fiscal 2018.
The following is a summary of restricted stock units (“RSU’s”) and restricted stock awards (“RSA’s”):
Grant Date | Shares Issued | Fair Value (1) | Shares Vested | |||||||||
June 2014 (RSA) | 307,876 | $ | 483,284 | 247,111 | ||||||||
July 2014 (RSA) | 32,408 | 48,612 | 24,306 | |||||||||
August 2014 (RSA) | 81,020 | 121,179 | 63,296 | |||||||||
September 2014 (RSA) | 129,633 | 196,313 | 121,531 | |||||||||
March 2015 (RSA) | 72,919 | 378,109 | 18,230 | |||||||||
October 2015 (RSA) | 293,000 | 411,000 | 146,500 | |||||||||
November 2015 (RSA) | 36,200 | 54,300 | 18,100 | |||||||||
December 2015 (RSA) | 300,000 | 105,000 | 247,500 | |||||||||
January 2016 (RSA) | 40,000 | 68,000 | 10,000 | |||||||||
March 2016 (RSA) | 60,000 | — | 60,000 | |||||||||
June 2016 (RSA) | 118,000 | 533,160 | 45,000 | |||||||||
August 2016 (RSA) | 351,000 | 1,218,110 | 40,000 | |||||||||
January 2017 (RSA) | 192,000 | 1,153,951 | 25,000 | |||||||||
February 2017 (RSA) | 110,000 | 697,500 | — | |||||||||
March 2017 (RSA) | 20,000 | — | — | |||||||||
September 2017 (RSA) | 111,000 | 790,320 | — | |||||||||
September 2017 (RSU) | 253,000 | 1,796,910 | — | |||||||||
October 2017 (RSU) | 301,000 | 1,872,220 | — | |||||||||
November 2017 (RSU) | 97,494 | 608,362 | — | |||||||||
December 2017 (RSU) | 120,000 | 775,800 | — | |||||||||
3,026,550 | $ | 11,312,130 | 1,066,574 |
In relation to the above restricted stock agreements for the three months ended December 31, 2017 and 2016, the Company recorded stock-based compensation expense for the shares that have vested of $931,894 and $1,536,602, respectively.
In relation to the above restricted stock agreements for the six months ended December 31, 2017 and 2016, the Company recorded stock-based compensation expense for the shares that have vested of $1,450,226 and $2,233,782, respectively.
As of December 31, 2017, the Company had approximately $7.0 million in unrecognized stock-based compensation expense related to the unvested shares.
Note 11. Commitments
Operating leases
The Company leases two office locations in Huntersville, NC pursuant to five- and three-year lease agreements. The three-year lease agreement expires in April 2018. The operating leases provide for annual real estate tax and cost of living increases and contain predetermined increases in the rentals payable during the terms of the leases. The aggregate rent expense is recognized on a straight-line basis over the lease term. The total lease rental expense was $51,718 and $28,404 for the six months ended December 31, 2017 and 2016, respectively. The total lease rental expense was $34,611 and $14,202 for the three months ended December 31, 2017 and 2016, respectively.
The Company currently leases equipment for its Canandaigua, NY facility on a month-to-month basis. The original lease agreement had a three-month term beginning on June 16, 2017. The aggregate rent expense is recognized on a straight-line basis over the lease term. The total lease rental expense was $70,087 and $0 for the six months ended December 31, 2017 and 2016, respectively. The total lease rental expense was $35,087 and $0 for the three months ended December 31, 2017 and 2016, respectively.
Real Estate Contingent Liability
In connection with the acquisition of the STC-MEMS Business, the Company agreed to pay to FRMC a penalty, as set forth below, if the Company sells the property subject to the related Definitive Real Property Purchase Agreement within three (3) years after the date of such agreement for an amount in excess of $1,750,000, subject to certain enumerated exceptions. The penalty imposed shall be equivalent to the amount that the sales price of the property exceeds $1,750,000 up to the maximum penalty (“Maximum Penalty”) defined below:
Maximum Penalty | |||||
Year 1 | $ | 5,960,000 | |||
Year 2 | $ | 3,973,333 | |||
Year 3 | $ | 1,986,667 |
The fair value of the contingent liability was calculated by an independent third-party appraisal firm, utilizing a present value calculation based on the probability the Company sells the property triggering the contingent penalty and a discount rate of 16.1%. The 16.1% discount rate was derived from a weighted average cost of capital, modified to include the effects of the bargain purchase price. As of December 31, 2017 and June 30, 2017, the fair value of the contingent liability was $1,809,847 and $1,730,542, respectively. During the three months ended December 31, 2017 and 2016, the Company marked the contingent liability to fair value and recorded a loss of $79,305 and $0, respectively, relating to the change in fair value. During the six months ended December 31, 2017 and 2016,2021 the Company marked the contingent liability toawarded certain employees and directors grants of an aggregate of approximately 0.9 million restricted stock units (“RSUs”) with a weighted average grant date fair value of $9.23. The RSUs will be expensed over the requisite service period. The terms of the RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the RSUs will generally vest over 4 – 5 years.
Compensation expense related to our stock-based awards described above was as follows (in thousands):
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Research and Development | $ | 1,716 | $ | 928 | $ | 2,948 | $ | 1,942 | ||||||||
General and Administrative | 1,184 | 1,138 | 2,300 | 2,151 | ||||||||||||
Total | $ | 2,900 | $ | 2,066 | $ | 5,248 | $ | 4,093 |
Unrecognized stock-based compensation expense and recorded a loss of $79,305 and $0, respectively, relatingweighted-average years to the change in fair value.be recognized are as follows (in thousands):
As of December 31, 2021 | ||||||||
Unrecognized stock-based compensation | Weighted- average years to be recognized | |||||||
Options | $ | 4,082 | 2.53 | |||||
Restricted stock units | $ | 12,271 | 2.37 |
Note 12. Related Party TransactionsCommitments and Contingencies
Leases
The Company leases office space and office equipment in Huntersville, NC as well as equipment in Canandaigua, NY. Our leases have remaining lease terms of up to five years, some of which include options to extend the leases for up to twenty-four months. Following adoption of ASC 842, lease expense excludes capital area maintenance and property taxes.
The components of lease expense were as follows:
Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | Six Months Ended | Six Months Ended | |||||||||||||
Operating Lease Expense | $ | 82 | $ | 75 | $ | 157 | $ | 150 |
Supplemental balance sheet information related to leases was as follows (in thousands):
Classification on the Condensed Consolidated Balance Sheet | December 31, 2021 | June 30, 2021 | ||||||||
Assets | ||||||||||
Operating lease assets | Other non-current assets | $ | 389 | $ | 471 | |||||
Liabilities | ||||||||||
Other current liabilities | Current liabilities | 291 | 270 | |||||||
Operating lease liabilities | Other non-current liabilities | 94 | 202 | |||||||
Weighted Average Remaining Lease Term: | ||||||||||
Operating leases | 1.25 | 1.76 | ||||||||
Weighted Average Discount Rate: | ||||||||||
Operating leases | 11.9 | % | 12.5 | % |
Consulting Services
The following table outlines the minimum future lease payments for the next five years and thereafter, (in thousands):
For the year ending June 30, | ||||
2022 | $ | 176 | ||
2023 | 231 | |||
2024 | 7 | |||
2025 | — | |||
Thereafter | — | |||
Total lease payments (undiscounted cash flows) | 414 | |||
Less imputed interest | (29 | ) | ||
Total | $ | 385 |
Ontario County Industrial Development Authority Agreement
AEG Consulting,On February 27, 2018, the Company entered into a firm owned by oneLease and Project Agreement (the “Lease and Project Agreement”) and a Company Lease Agreement (the “Company Lease Agreement” and together with the Lease and Project Agreement, the “Agreements”), each dated as of February 1, 2018, with the Ontario County Industrial Development Agency, a public benefit corporation of the Co-ChairmenState of New York (the “OCIDA”). Pursuant to the Agreements, the Company leases for $1.00 annually to the OCIDA an approximately 9.995 acre parcel of land in Canandaigua, New York, together with the improvements thereon (including the Company’s New York fabrication facility), and transfer title to certain related equipment and personal property to the OCIDA (collectively, the “Facility”). The OCIDA leases the Facility back to the Company for annual rent payments specified in the Lease and Project Agreement for the Company’s primary use as research and development, manufacturing, warehouse and professional office space in its business, and to be subleased, in part, by the Company to various existing tenants. The Company estimates substantial tax savings during the term of the Company’s BoardAgreements, which expire on December 31, 2028. In addition, subject to the terms of Directors received $10,245the Lease and $8,100Project Agreement, certain purchases and leases of eligible items will be exempt from the imposition of sales and use taxes. Subject to the terms of the Lease and Project Agreement, the OCIDA has also granted to the Company an exemption from certain mortgage recording taxes for consulting feesone or more mortgages securing an aggregate principal amount not to exceed $12.0 million, or such greater amount as approved by the OCIDA in its sole and absolute discretion. The benefits provided to the Company pursuant to the terms of the Lease and Project Agreement are subject to claw back over the life of the Agreements upon certain recapture events, including certain events of default.
Litigation, Claims and Assessments
On October 4, 2021, the Company and its subsidiary, Akoustis, Inc., were named as defendants in a complaint filed by Qorvo, Inc. in the United States District Court for the six months ended December 31, 2017District of Delaware alleging, among other things, patent infringement, false advertising, false patent marking, and 2016, respectively. On September 27, 2017,unfair competition. The complaint alleges that the defendants misappropriated proprietary information, made misleading statements about the characteristics of certain of its products, and sold products infringing on the certain of the plaintiff’s patents. The plaintiff seeks an injunction enjoining the defendants from the alleged infringement and damages, including punitive and statutory enhanced damages, in an unspecified amount. The Company believes this lawsuit is without merit and intends to defend against it vigorously. However, it can provide no assurance as to the outcome of such dispute, and such action may result in judgments against the Company granted the Co-Chairman restricted stock units for 5,000 shares ofan injunction, significant damages or other relief, such as future royalty payments to Qorvo, Inc. Even if ultimately settled or resolved in the Company’s common stock with a fair value on the grant datefavor, this action may result in significant expenses, diversion of $35,600,management and stock options to purchase 10,000 shares oftechnical personnel attention and disruptions and delays in the Company’s common stock withbusiness, all of which could have a fair valuematerial adverse effect on the grant dateits business, financial condition and results of $46,292 for consulting services provided by AEG Consulting. Both awards vest 25% on each of the first four anniversaries of the grant date. The options carry an exercise price of $7.12 and have an expiration period of 7 years.operations.
On September 27, 2017, the Company granted a restricted stock award of 11,000 shares of the Company’s common stock with a fair value on the grant date of $78,320 to a director for board advisory services provided from January 2017 to June 2017, prior to the director’s appointment to the Board of Directors on July 14, 2017. The award vests 25% on each of the first four anniversaries of the grant date.
Private Placement
On November 14, 2017, certain members of the Company’s Board of Directors purchased shares of the Company’s Common Stock at a price of $5.50 per share in a private placement. One of the Company’s Co-Chairmen purchased 154,545 shares at a price of $5.50 per share for an aggregate purchase price of $849,998. The other Co-Chairman purchased 1,818 shares at a price of $5.50 per share for an aggregate purchase price of $9,999. Three additional members of the Company’s Board of Directors each purchased 5,454 shares at a price of $5.50 per share for an aggregate purchase price of $29,997 for each such Board member.
On December 1, 2017 a brother of the Company’s Chief Executive Officer purchased 12,000 shares of the Company’s common stock in a private placement at a price of $5.50 per share for an aggregate purchase price of $66,000.
Note 13. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company operates in two2 segments, Foundry Fabrication Services, which consists of engineering review services and STC-MEMS foundry services;services, and RF FiltersProduct, which consists of amplifier and filter product sales, and grant revenue. The Company records all general and administrative costs in the RF Product segment.
The Company evaluates performance of its operating segments based on revenue and operating profit (loss). Segment information for the three and six months ended December 31, 20172021 and 20162020 are as follows (in thousands):
Foundry/ Fabrication Services | RF Product | Total | ||||||||||
Three months ended December 31, 2021 | ||||||||||||
Revenue with customers | $ | 384 | $ | 3,288 | $ | 3,672 | ||||||
Cost of revenue | 377 | 4,172 | 4,549 | |||||||||
Gross margin | 7 | (884 | ) | (877 | ) | |||||||
Research and development | — | 9,192 | 9,192 | |||||||||
General and administrative | — | 5,146 | 5,146 | |||||||||
Income (Loss) from Operations | $ | 7 | (15,222 | ) | (15,215 | ) | ||||||
Three months ended December 31, 2020 | ||||||||||||
Revenue with customers | $ | 670 | $ | 638 | $ | 1,308 | ||||||
Cost of revenue | 350 | 2,252 | 2,602 | |||||||||
Gross margin | 320 | (1,614 | ) | (1,294 | ) | |||||||
Research and development | — | 5,566 | 5,566 | |||||||||
General and administrative | — | 3,361 | 3,361 | |||||||||
Income (Loss) from Operations | $ | 320 | (10,567 | ) | (10,221 | ) | ||||||
Six months ended December 31, 2021 | ||||||||||||
Revenue with customers | $ | 796 | $ | 4,744 | $ | 5,540 | ||||||
Cost of revenue | 947 | 6,504 | 7,451 | |||||||||
Gross margin | (151 | ) | (1,760 | ) | (1,911 | ) | ||||||
Research and development | — | 17,166 | 17,166 | |||||||||
General and administrative | — | 9,022 | 9,022 | |||||||||
Income (Loss) from Operations | $ | (151 | ) | (27,948 | ) | (28,099 | ) | |||||
Six months ended December 31, 2020 | ||||||||||||
Revenue with customers | $ | 727 | $ | 1,217 | $ | 1,944 | ||||||
Cost of revenue | 403 | 3,848 | 4,251 | |||||||||
Gross margin | 324 | (2,631 | ) | (2,307 | ) | |||||||
Research and development | — | 11,946 | 11,946 | |||||||||
General and administrative | — | 6,288 | 6,288 | |||||||||
Income (Loss) from Operations | $ | 324 | (20,865 | ) | (20,541 | ) | ||||||
As of December 31, 2021 | ||||||||||||
Accounts receivable | $ | 365 | $ | 2,137 | $ | 2,502 | ||||||
As of June 30, 2021 | ||||||||||||
Accounts receivable | $ | 242 | $ | 928 | $ | 1,170 |
Note 14. Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and six months ended December 31, 2021 and December 31, 2020 presented in these condensed consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents at December 31, 2021 and 2020:
December 31, 2021 | December 31, 2020 | |||||||
Convertible Notes | — | 4,960,800 | ||||||
Options | 2,981,627 | 2,589,719 | ||||||
Warrants | 158,759 | 359,570 | ||||||
Total | 3,140,386 | 7,910,089 |
Note 15. Income Taxes
On October 15, 2021, the Company acquired a majority ownership position in RFMi, a fabless supplier of acoustic wave RF resonators and filters. The Company acquired a 51% ownership interest in RFMi from Tai-Saw Technology Co., Ltd. (“TST”) in exchange for $6.0 million in cash and approximately $2.5 million payable of common stock of the Company. The Company’s preliminary allocation of purchase price for this acquisition is included in Note 7 – Business Acquisition, and includes an approximately $2.0 million deferred tax liability related to the acquired identifiable intangible assets. AKTS and RFMi will not file a consolidated tax return. Therefore, the valuation allowance remains in place on the net AKTS deferred tax assets.
Note 16. Fair Value Measurement
Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Foundry Fabrication Services | �� | RF Filters | Total | |||||||||
Three months ended December 31, 2017 | ||||||||||||
Revenue | $ | 291,833 | $ | 5,488 | $ | 297,321 | ||||||
Grant revenue | — | 147,232 | 147,232 | |||||||||
Cost of revenue | 329,556 | 280 | 329,836 | |||||||||
Gross margin | (37,723 | ) | 152,440 | 114,717 | ||||||||
Research and development | — | 3,473,031 | 3,473,031 | |||||||||
General and administrative | — | 2,189,904 | 2,189,904 | |||||||||
Loss from Operations | $ | (37,723 | ) | $ | (5,510,495 | ) | $ | (5,548,218 | ) | |||
Three months ended December 31, 2016 | ||||||||||||
Revenue | $ | — | $ | 159,068 | $ | 159,068 | ||||||
Cost of revenue | — | — | — | |||||||||
Gross margin | — | 159,068 | 159,068 | |||||||||
Research and development | — | 775,984 | 775,984 | |||||||||
General and administrative | — | 2,066,768 | 2,066,768 | |||||||||
Loss from Operations | $ | — | $ | (2,683,684 | ) | $ | (2,683,684 | ) |
Foundry Fabrication Services | RF Filters | Total | ||||||||||
Six months ended December 31, 2017 | ||||||||||||
Revenue | $ | 589,733 | $ | 8,528 | $ | 598,261 | ||||||
Grant revenue | — | 147,232 | 147,232 | |||||||||
Cost of revenue | 522,585 | 480 | 523,065 | |||||||||
Gross margin | 67,148 | 155,280 | 222,428 | |||||||||
Research and development | — | 6,477,396 | 6,477,396 | |||||||||
General and administrative | — | 4,022,526 | 4,022,526 | |||||||||
Loss from Operations | $ | 67,148 | $ | (10,344,642 | ) | $ | (10,277,494 | ) | ||||
Six months ended December 31, 2016 | ||||||||||||
Revenue | $ | — | $ | 159,068 | $ | 159,068 | ||||||
Cost of revenue | — | — | — | |||||||||
Gross margin | — | 159,068 | 159,068 | |||||||||
Research and development | — | 1,428,560 | 1,428,560 | |||||||||
General and administrative | — | 3,330,011 | 3,330,011 | |||||||||
Loss from Operations | $ | — | $ | (4,599,503 | ) | $ | (4,599,503 | ) | ||||
As of December 31, 2017 | ||||||||||||
Accounts receivable | $ | 296,909 | $ | 1,888 | $ | 298,797 | ||||||
Property and Equipment | 424,174 | 12,475,463 | 12,899,637 | |||||||||
As of June 30, 2017 | ||||||||||||
Accounts receivable | $ | — | $ | — | $ | — | ||||||
Property and Equipment | 424,174 | 7,575,651 | 7,999,825 |
Level 1: Observable prices in active markets for identical assets and liabilities.
Note 14.Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
The following table sets forth a summary of the changes in the fair value of Level 3 contingent consideration that are measured at fair value on a recurring basis:
Contingent consideration | December 31, 2021 | December 31, 2020 | ||||||
Beginning balance | $ | — | $ | — | ||||
Initial fair value of contingent consideration | 1,082 | — | ||||||
Change in fair value of contingent consideration | — | �� | — | |||||
Ending balance | $ | 1,082 | $ | — |
The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a Monte Carlo simulation in an option pricing framework with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future sales revenue of RFMi products in each of calendar year 2022 and 2023 and the volatility of those revenues, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer.
Note. 17. Subsequent Events
The Company has evaluatedperformed a review of events subsequent eventsto the balance sheet date through the date of issuance of thesethe financial statements were issued and has determined that there have beenwere no subsequentsuch events which require accountingrequiring recognition or disclosure through such date.in the financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report to “Akoustis,” the “Company,” “we,” “us,” and “our” refer to Akoustis Technologies, Inc. and its consolidated subsidiaries, Akoustis, Inc. and Akoustis Manufacturing New York, Inc., each of which are Delaware corporations.subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that relate to our plans, objectives, estimates, and goals. Any and all statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of commercially viable radio frequency (RF)(“RF”) filters, (ii) a projectionprojections of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in this management’s discussion and analysis of financial condition or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)(the “SEC”), (iv) our ability to efficiently utilize cash and cash equivalents to support our operations for a given period of time, (v) our ability to engage customers while maintaining ownership of our intellectual property, and (vi) the assumptions underlying or relating to any statement described in (i), (ii), (iii), (iv) or (iii)(v) above.
The forward-looking
Forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates, and assumptions and are subject to a number of risks and uncertainties and other influences, many of which are beyond our control. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, our abilityinability to continueobtain adequate financing and sustain our status as a going concern; our inability to obtain adequate financing; our limited operating history; our inability to generate revenues or achieve profitability; the results of our research and development (R&D)(“R&D”) activities; our inability to achieve acceptance of our products in the market; the impact of the COVID-19 pandemic on our operations, financial condition and the worldwide economy, including its impact on our ability to access the capital markets; general economic conditions, including upturns and downturns in the industry; shortages in supplies needed to manufacture our products, or needed by our customers to manufacture devices incorporating our products; our limited number of patents; failure to obtain, maintain, and enforce our intellectual property rights; claims of infringement, misappropriation or misuse of third party intellectual property that, regardless of merit, could result in significant expense and loss of our intellectual property rights; our inability to attract and retain qualified personnel; the outcome of current and any future litigation; our inability to attract and retain qualified personnel; our reliance on third parties to complete certain processes in connection with the manufacture of our products; product quality and defects; existing or increased competition; our ability to market and sell our products; our inability to successfully integratemanufacture, market and sell products based on our technologies; our ability to meet the required specifications of customers and achieve qualification of our products for commercial manufacturing in a timely manner; our inability to successfully scale our New York wafer fabrication facility and related operations intowhile maintaining quality control and assurance and avoiding delays in output; contracting with customers and other parties with greater bargaining power and agreeing to terms and conditions that may adversely affect our business; the possibility that the anticipated benefits from our business acquisitions (including the acquisition of RFM Integrated Device, Inc. (“RFMi”) will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ (including RFMi’s) operations will be greater than expected and the possibility of disruptions to our business during integration efforts and strain on management time and resources; risks related to doing business in foreign countries, including China; any security breaches, cyber-attacks or other disruptions compromising our proprietary information and exposing us to liability; our failure to innovate or adapt to new or emerging technologies; our failure to comply with regulatory requirements; results of any arbitration or litigation that may arise; stock volatility and illiquidity; our failure to implement our business plans or strategies; our failure to remediate the material weakness in our internal control over financial reporting; and our failure to maintain the Trusted Foundry accreditation of our New York wafer fabrication facility.effective internal control over financial reporting.
These and other risks and uncertainties, which are described in more detail in Part II, Item 1A. “Risk Factors” of this report and in our Annual Report on Form 10-K, filed with the SEC on September 20, 2017August 21, 2021 (the “2017“2021 Annual Report”), could cause our actual results to differ materially from those expressed or implied by the forward-looking statements in this report. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them. Except as may be required by law, we do not undertake any obligation to update the forward-looking statements contained in this report to reflect any new information or future events or circumstances or otherwise.
Overview
AkoustisAkoustis® is an early-stageemerging commercial product company focused on developing, designing, and manufacturing innovative RF filter productssolutions for the mobile wireless device industry, including for products such as smartphones and tablets, cellularnetwork infrastructure equipment, Wi-Fi Customer Premise Equipment (“CPE”) and WiFi premise equipment.defense applications. Filters are critical in selecting and rejecting signals, and their performance enables differentiation in the modules defining the RF front-end (“RFFE”). Located between the device’s antenna and its digital backend, the RF front-end (RFFE)RFFE is the circuitry that performs the analog signal processing and contains components such as amplifiers, filters and switches. To construct the resonators that are the building blocks for the RF filter, weWe have developed a fundamentally new single-crystalproprietary microelectromechanical system (“MEMS”) based bulk acoustic wave (“BAW”) technology and a unique manufacturing process flow, called “XBAW®”, for our filters produced for use in RFFE modules. Our XBAW® filters incorporate optimized high purity piezoelectric materials for high power, high frequency and wide bandwidth operation. We are developing RF filters for 5G, Wi-Fi and defense bands using our proprietary resonator device technology thatmodels and product design kits (PDKs). As we referqualify our RF filter products, we are engaging with target customers to evaluate our filter solutions. Our initial designs target UHB, sub 7 GHz 5G, Wi-Fi and defense bands. We expect our filter solutions will address problems (such as BulkONE®. Filters are critical in selectingloss, bandwidth, power handling, and rejecting signals, and their performance enables differentiationisolation) created by the growing number of frequency bands in the modules defining the RFFE.RFFE of mobile devices, infrastructure and premise equipment to support 5G, and Wi-Fi. We have prototyped, sampled and begun commercial shipment of our single-band low loss BAW filter designs for 5G frequency bands and 5 GHz and 6 GHz Wi-Fi bands which are suited to competitive BAW solutions and historically cannot be addressed with low-band, lower power handling surface acoustic wave (“SAW”) technology. Additionally, through our majority-owned subsidiary, RFMi, we make sales of complementary SAW resonators, RF filters, crystal (Xtal) resonators and oscillators, and ceramic products.
We believe owningown and/or have filed applications for patents on the core resonator device technology, manufacturing facility and manufacturingintellectual property (“IP”) necessary to produce our designsRF filter chips and operate as a “pure-play” RF filter supplier, providing discrete filter solutions direct to Original Equipment Manufacturers (“OEMs”) and aligning with the front- end module manufacturers that seek to acquire high performance filters to expand their module businesses. We believe this business model is the most direct and effectiveefficient means of delivering our solutions to the market. Furthermore, our
Technology. Our device technology is based upon bulk-mode acoustic resonance, which we believe is superior to surface-mode resonance for high-band and ultra-high- band (“UHB”) applications that include 4G/LTE, emerging 5G, Wi-Fi, and WiFi frequency bands. Whiledefense applications. Although some of our target customers utilize or makemanufacture the RFFE module, several customersthey may lack access to critical high-bandUHB filter technology that we produce, which is necessary to compete in high-band applicationshigh frequency applications.
Manufacturing. We currently manufacture Akoustis’ high-performance RF filter circuits, using our first generation XBAW® wafer process, in our 120,000-square foot wafer- manufacturing facility located in Canandaigua, New York (the “NY Facility”), which we acquired in June 2017. RFMi products are manufactured by a third party and other traditional surface-mode solutions where higher power performance is required. We intendsold either directly to design, manufacture,consumers or sold and marketshipped with Akoustis products.
Intellectual Property. As of January 17, 2022, our IP portfolio included 56 patents, including a blocking patent that we have licensed from Cornell University. Additionally, as of January 17, 2022, we have 93 pending patent applications. These patents cover our XBAW® RF filter technology from raw materials through the system architectures.
By designing, manufacturing, and marketing our RF filter products to multiple mobile phone original equipment manufacturers (OEMs), cellularOEMs, defense OEMs, network infrastructure OEMs, and WiFi router customers andWi-Fi CPE OEMs, we seek to enable broader competition among the front-end module manufacturers. We plan to operate as a “pure-play” RF filter supplier and align with the front-end module manufacturers who seek to acquire high performance filters to grow their module business.
We
Since we own and/or have built prototype resonators using our proprietary single-crystal materials. We are currently optimizing our BulkONE® technology in our 120,000-square foot wafer-manufacturing plant located in Canandaigua, New York, which we acquired in June 2017. We leverage both federal and state level, non-dilutive R&D grants to support development and commercialization of our technology. We are developing resonatorsfiled applications for 4G/LTE, emerging 5G, and WiFi bands andpatents on the associated proprietary models and design kits required to design our RF filters. As we stabilize the wafer process technology, we plan to engage with strategic customers to evaluate our filter prototypes. Our initial designs will target high-band 4G/LTE, emerging 5G, and WiFi frequency bands. Since Akoustis owns its core technology and controlscontrol access to itsour intellectual property, we expect to offer several ways to engage with potential customers. First, we couldintend to engage with the mobilemultiple wireless market,markets, providing standardized filters that we design and offer as a standard catalog component to multiple customers.components. Second, we could start with aexpect to deliver unique filters to customer-supplied filter specification,specifications, which we will design and fabricate foron a specific customer.customized basis. Finally, we couldmay offer our models and design kits for our customers to design their own filter intofilters utilizing our proprietary technology.
We have earned minimal revenue from operations since inception, and we have funded our operations primarily with contract researchdevelopment contracts, RF filter and production orders, government grants, foundry and engineering services, and sales of ourdebt and equity securities, and debt. We havesecurities. The Company has incurred losses, totaling approximately $26.7 million from inception through December 31, 2017. These losses are primarily the result of material and material processing costs associated with developing and commercializing our technology, as well as personnel costs, professional fees (primarily accounting and legal), and other general and administrative (“G&A”) expenses. We expect to continue to incur substantial costs for commercialization of our technology on a continuous basis because our business model involves materials and solid-state device technology development and engineering of catalog and custom filter designs. design solutions.
Plan of Operation
We plan to commercialize our technology by designing and manufacturing single-band and multi-band BAW RF filter solutions in our New York wafer fabrication facility. We expect our filter solutions will address problems (such as loss, bandwidth, power handling, and isolation) created by the growing number of frequency bands in the RFFE of mobile devices to support 4G/LTE, emerging 5G, and WiFi. We have prototyped our first single-band low-loss BAW filter designs for 4G/LTE frequency bands, which are dominated by competitive BAW solutions and historically cannot be addressed with low-band, lower power handling surface acoustic wave (SAW) technology. During the second half of calendar 2017 we sampled filter product prototypes to prospective customers that cover LTE-Band 41, Radar and 5GHz WiFi applications. As we receive customer evaluations, we will do further iterations on the designs and provide next generation samples for evaluation and characterization.
In order toTo succeed, we must convince mobile phone OEMs, RFFE module manufacturers, cellularnetwork infrastructure OEMs, Wi-Fi CPE OEMs and WiFi router OEMsdefense customers to use our BulkONE®XBAW® filter technology in their systems and modules. However, since there are only two dominant BAW filter suppliers in the industry that have high-band technology, and both utilize such technology as a competitive advantage at the module level, we expect customers that lack access to high-band filter technology will be open to engage with our pure-play filter company.
Once we complete customer validation of our technology, we expect to complete qualification of our BulkONE® process technology in the first half of calendar 2018 to support an initial product family of 4G/LTE, and WiFi filter solutions. Once we have stabilized our process technology in a manufacturing environment, we intend to complete a production release of our high-band filter products in the frequency range from 2.5 GHz to 6.0 GHz. The target frequency bands will be prioritized based upon customer priority. We expect this will require recruiting and hiring additional personnel and capital investments.
We plan to pursue RF filter design and R&D development agreements and potentially joint ventures with target customers and other strategic partners.partners, although we cannot guarantee we will be successful in these efforts. These types of arrangements may subsidize technology development costs and qualification, filter design costs, and offer complementary technology and market intelligence and other avenues to revenue. However, we intend to retain ownership of our core technology, intellectual property, designs, and related improvements. We expect to pursue development of catalog designs for multiple customers and to offer such catalog products in multiple sales channels.
AsImpact of February 1, 2018,COVID-19 on our Business
Although the Company had $9.7 millionultimate impact of cashthe COVID-19 pandemic on our business is unknown, in an effort to protect the health and cash equivalents to fund our operations, including R&D, commercializationsafety of our technology, developmentemployees, we have taken proactive, precautionary action and adopted social distancing measures, daily self-health attestations, and mandatory mask policies at our locations, including when warranted by state and local guidelines, the implementation of new staffing plans in our patent strategyfacilities whereby certain employees work remotely and expansionthe remaining on-site force is divided into multiple shifts or segregated in different parts of our patent portfolio,the facility. Our actions continue to evolve in response to new government measures and scientific knowledge regarding COVID-19. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. These measures have impacted the method and timing of certain business meetings and deliverables to certain customers, as well as to provide working capital and funds for other general corporate purposes. These funds are expected to be sufficient to fund our operations into the first quarter of fiscal 2019. However, there is no assurance that the Company’s projections and estimates are accurate. Our anticipated expenses 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), costs associated with the integration and operation of our New York wafer fabrication facility and related operations, legal expenses, sales and marketing costs, G&A expenses, and other costs associated with an early stage, public technology company. We anticipate increasing the number of employees; however, this is highly dependent on the nature of our development efforts, our success in commercialization, and our ability to source additional funds.obtain certain materials, equipment and services from suppliers.
These actions and the global health crisis caused by COVID-19 have negatively impacted business activity across the globe. We have observed declining demand and price reductions in the electronics industry as business and consumer activity has decelerated. Additionally, we have observed delays in certain suppliers’ shipment of materials necessary for us to manufacture our products and in certain vendors’ ability to deliver equipment for installation at our facilities. When COVID-19 is demonstrably contained, we anticipate addinga rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments; however, the timing and extent of any such rebound is uncertain.
We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, for R&D in bothcustomers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the ultimate effects any such alterations or modifications may have on our New Yorkbusiness, including the effects on our customers, employees, and North Carolina facilities, as well as G&A functions, to supportprospects, or on our efforts. We expect capital expenditures to be approximately $5.93 millionfinancial results for the purchaseremainder of equipment and software during the next 12 months, and we are currently investigating the feasibility of using debt facilities, equipment leases,fiscal year 2022 or government grants to fund all or part of the purchase of the equipment. beyond.
The amounts we actually spendRecent Developments
On October 13, 2021, Akoustis announced that it had received a design win and increased volume shipments of its 5.5 GHz and 6.5 GHz XBAW™ filters to a tier-1 Wi-Fi 6E original equipment manufacturer.
On October 14, 2021, Akoustis announced that it was entering the timing control market with ultra-high frequency XBAW™ resonators.
On October 18, 2021, Akoustis announced that it was acquiring a majority position in RFMi, a fabless supplier of acoustic wave resonators and filters.
On November 3, 2021, Akoustis announced that it had engaged with a third mobile customer, a RF front-end module maker.
On November 16, 2021, Akoustis announced that it had received a Wi-Fi 6E design win for any specific purpose may vary significantly and will depend on a number of factors, including, but not limited to, the pace of progress of our commercialization and development efforts, actual needs with respect toMU-MIMO gateway product testing, R&D, market conditions, changes in or revisions to our marketing strategies, and the integration of our New York wafer fabrication facility and related operations into our business.from a new customer.
Commercial development ofOn December 16, 2021, Akoustis announced that it had received a purchase order from a new technology, by its nature, is unpredictable. Although we will undertake development efforts with commercially reasonable diligence, there can be no assurance that our current cash position will be sufficient to enable us to commercialize our technology to the extent needed to create future sales to sustain operations. If our current cash is insufficient for these purposes, we are unable to source additional funds on terms acceptable to the Company (or at all), or we experience costs in excess of estimates to continue our R&D plan, it is possible that we would not have sufficient resources to continue as a going concern and we may be required to curtail or suspend our operations. Even if we are able to source sufficient funds to continue as a going concern, our technology may not be accepted, we may never earn revenues sufficient to support our operations, and we may never be profitable.tier-1 5G mobile customer.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 20172021 Annual Report.
Results of Operations
Three Months Ended December 31, 20172021 and 20162020
Revenue
The Company recorded revenue of $444,553 during the three months ended December 31, 2017, of which $291,833 was revenue for foundry services provided at our New York facility, acquired on June 26, 2017. The remaining revenue consisted primarily of grant revenue. The Company recorded revenue of $159,068 in the comparative three-month period ended December 31, 2016, primarily consisting of grant revenue.
Cost of Revenue
The Company recorded cost of revenue of $329,836 for the three months ended December 31, 2017 which included direct labor, direct materials and facility costs associated with the foundry services revenue. The Company did not record any cost of revenue for the comparative three-month period of 2016.
Operating Expenses
Total operating expenses for the three-month period ended December 31, 2017 were $5.7 million and included R&D expenses of $3.5 million and G&A expenses of $2.2 million. Total operating expenses for the three-month period ended December 31, 2016 were $2.8 million and included R&D expenses of $0.8 million and G&A expenses of $2.0 million.
Research and Development Expenses
R&D expenses of $3.5$3.7 million for the three months ended December 31, 2017 were comprised primarily of salaries and wages for R&D personnel of $1,116,000, stock-based compensation of $831,000, material and third-party processing costs of $220,000, facility costs of $1,078,000, and depreciation of $164,000. R&D expense for the three months ended December 31, 2016 was $0.8 million. The period over period increase was $2.7 million, or 348%. The higher spend was due2021 as compared to the increase in salaries and wages for the assumed R&D personnel in our recently acquired NY fabrication facility, as well as incremental R&D hires made since the closing of the acquisition. In addition, we saw an increase of $562,000, or 209%, in stock-based compensation associated with R&D personnel due to restricted stock grants made to personnel hired since December 31, 2016 and additional issuances to personnel on the payroll as of December 31, 2016. Facility costs of $1,078,000 were associated with the NY facility acquired in June 2017 and include utilities of $207,000, repair and maintenance costs of $408,000, and supplies and parts costs of $463,000. Depreciation expense of $164,000 was higher over the comparative period by $152,000, mainly due to higher deprecation recorded for assets included in the NY facility acquisition.
General and Administrative Expense
G&A expenses were $2.2$1.3 million for the three months ended December 31, 2017, as compared2020. The increase of $2.4 million was primarily due to $2.0an increase in RF product revenue of $2.8 million or 633%, which includes revenue from sales of RFMi products. Partially offsetting this increase was a decrease in non-recurring engineering services of $0.4 million.
Cost of Revenue
Cost of revenue includes direct labor, material, net realizable value (NRV) adjustments, and facility costs primarily associated with foundry services revenue, manufacturing of filter products and engineering services. The Company recorded cost of revenue of $4.5 million for the three months ended December 31, 2016, an increase of $123,000, or 6%. G&A expense for the quarter was comprised primarily of salary and wages of $526,000, stock-based compensation of $648,000, professional fees (primarily legal and accounting) of $429,000, recruiting fees of $120,000, depreciation of $73,000, and travel of $82,000. We recorded an increase of $269,000, or 105%, in salaries and wages due2021 as compared to the onboarding of new administrative personnel since December 31, 2016. Stock-based compensation of $648,000 decreased from the comparative period by $627,000, or 49%. Professional fees increased by $85,000, or 25%, mainly for accounting fees due to costs associated with the valuation of the NY fabrication facility and the fees for the review and audit of the associated filings. Travel expense for G&A personnel increased by $39,000, or 89%, due to increased travel to the NY facility for transition activities, as well as increased travel associated with investor conferences and customer outreach.
Net Loss
The Company recorded a net loss of $5.5$2.6 million for the three months ended December 31, 2017, compared2020. The $1.9 million increase is primarily due to a net losscosts associated with RF product revenue which increased by $2.0 million, which includes cost of $3.4revenue from sales of RFMi products.
Research and Development Expenses
R&D expenses were $9.2 million for the three months ended December 31, 2016. The primary drivers2021 and were $3.6 million, or 65.1% higher than the prior year amount for the same period of the additional loss of $2.1$5.6 million. Personnel costs, including stock-based compensation, were $5.3 million were higher personnel cost primarilycompared to $3.0 million in the NY facility acquired on June 26, 2017 (higher by $1.1 million), higher depreciation and facility costs of $224,000 and $1,072,000, respectively, both mainly due to the ramp up of R&D activities and the acquisition of our NY facility in June 2017.
Six Months Ended December 31, 2017 and 2016
Revenue
The Company recorded revenue of $745,493 during the six months ended December 31, 2017, of which $589,733 was revenue for foundry services provided at our New York facility, acquired on June 26, 2017. The remaining revenue consisted primarily of grant revenue. The Company recorded revenue of $159,068 in the comparative six-monthprior year period, ended December 31, 2016, primarily consisting of grant revenue.
Cost of Revenue
The Company recorded cost of revenue of $523,065 for the six months ended December 31, 2017, which included direct labor, direct materials and facility costs associated with the foundry services revenue. The Company did not record any cost of revenue for the comparative six-month period of 2016.
Operating Expenses
Total operating expenses for the six-month period ended December 31, 2017 were $10.5 million and included R&D expenses of $6.5 million and G&A expenses of $4.0 million. Total operating expenses for the six-month period ended December 31, 2016 were $4.8 million and included R&D expenses of $1.4 million and G&A expenses of $3.4 million.
Research and Development Expenses
R&D expenses of $6.5 million for the six months ended December 31, 2017 were comprised primarily of salaries and wages for R&D personnel of $2,369,000, stock-based compensation of $1,113,000, material and third-party processing costs of $808,000, facility costs of $1,783,000 and depreciation of $321,000. R&D expense for the six months ended December 31, 2016 was $1.4 million. The period-over-period increase was $5.1 million, or 353%. The higher spend was due to the increase in salaries and wages for the assumed R&D personnel in our recently acquired NY fabrication facility as well as incremental R&D hires made since the closing of the acquisition. In addition, we saw an increase of $648,000,$2.3 million or 139%, in stock-based compensation associated with R&D personnel due to restricted stock grants made to personnel hired since December 31, 2016 and additional issuances to personnel on the payroll as of December 31, 2016. Material and third-party material processing costs increased over the comparative six-month period by $435,000, or 116%, as the result of the ramp up of development activities, primarily in our NY facility.77.4%. Facility costs of $1,783,000 were$2.2 million primarily associated with the NY facility acquired in June 2017 and included utilities of $600,000, repair and maintenance costs of $605,000, and supplies and parts costs of $578,000. Depreciation expense of $321,000 forFacility were $1.3 million higher than the six months ended December 31, 2017 was higher over the comparative six-month period ended December 31, 2016 by $298,000, mainly due to higher deprecation recorded for assets included in the NY facility acquisition. prior period.
General and Administrative Expense
General and administrative (“G&A”) expenses include salaries and wages for executive and administrative staff, stock-based compensation, professional fees, insurance costs and other general costs associated with the administration of our business. G&A expenses were $4.0 million for the sixthree months ended December 31, 2017,2021 were $5.1 million, which is an increase of $1.8 million compared to $3.4 million for the sixthree months ended December 31, 2016,2020. Year-over-year changes within G&A expenses include an increase in employee compensation (including stock-based compensation) of $693,000, or 21%. G&A expense$0.7 million as well as increased general expenses of $1.0 million, primarily professional fees.
Other (Expense)/Income
Other income for the sixthree months ended December 31, 20172021 was $28 thousand, which was comprised primarily of salary and wages of $930,000, stock-based compensation of $964,000, professional fees (primarily legal and accounting) of $949,000, insurance of $163,000, depreciation of 149,000, recruiting and relocation fees of $305,000, and travel of $191,000. We recorded an increase of $343,000, or 58%, in salaries and wages, and an increase of $299,000 in relocation and recruiting fees due tointerest income. Other expenses for the onboarding of new administrative personnel sincethree months ended December 31, 2016. Stock-based compensation2020 were $1.7 million, consisting of $964,000 decreased from the comparative period by $819,000, or 46%. Professional fees increased by $339,000, or 55%, mainly for accounting fees due to costs associated with the valuation$1.7 million of the NY fabrication facilitydebt discount amortization and the fees for the review and audit of the associated filings. Travel expense for G&A personnel increased by $124,000, or 185%, due to increased travel to the NY facility for transition activities, as well as increased travel associated with investor conferences and customer outreach. interest expense.
Net Loss
The Company recorded a net loss of $10.2$15.2 million for the sixthree months ended December 31, 2017,2021, compared to a net loss of $11.9 million for the three months ended December 31, 2020. The period-over-period incremental loss of $3.3 million, or 28.0%, was primarily driven by an increase in cost of revenue of $1.9 million, an increase in G&A expenses and R&D expenses of $5.4 million. These expense increases were partially offset by a revenue increase of $2.4 million and a decrease in other expenses of $1.7 million.
Six Months Ended December 31, 2021 and 2020
Revenue
The Company recorded revenue of $5.5 million for the six months ended December 31, 2016.2021 as compared to $1.9 million for the six months ended December 31, 2020. The primary driversincrease of the additional loss$3.6 million was primarily due to an increase in RF product revenue of $4.7$3.7 million were higher personnel costs primarily in the NY facility acquired on June 26, 2017 (higher by $2.2 million)or 371%, higherwhich includes revenue from sales of RFMi products.
Cost of Revenue
Cost of revenue includes direct labor, material, and material processing costsnet realizable value (NRV) adjustments, and facility costs primarily associated with foundry services revenue, manufacturing of $435,000filter products and $1,770,000, respectively, both mainlyengineering services. The Company recorded cost of revenue of $7.5 million for the six months ended December 31, 2021 as compared to $4.3 million for the six months ended December 31, 2020. The $3.2 million increase is primarily due to the ramp upcosts associated with RF product revenue which increased by $2.7 million, which includes cost of revenue from sales of RFMi products. In addition, non-recurring engineering costs increased by $0.5 million.
Research and Development Expenses
R&D activitiesexpenses were $17.2 million for the six months ended December 31, 2021 and were $5.3 million, or 43.7% higher than the acquisitionprior year amount for the same period of $11.9 million. Personnel costs, including stock-based compensation, were $9.5 million compared to $6.4 million in the prior year period, an increase of $3.1 million or 47.8%. Facility costs of $4.0 million primarily associated with the NY Facility were $1.8 million higher than the prior period. Material costs of $3.3 million were $0.4 million higher than the prior period.
General and Administrative Expense
General and administrative (“G&A”) expenses include salaries and wages for executive and administrative staff, stock-based compensation, professional fees, insurance costs and other general costs associated with the administration of our NY facilitybusiness. G&A expenses for the six months ended December 31, 2021 were $9.0 million, which is an increase of $2.7 million compared to the six months ended December, 2020. Year-over-year changes within G&A expenses include an increase in June 2017.employee compensation (including stock-based compensation) of $1.3 million as well as increased general expenses of $1.4 million, primarily professional fees.
Other (Expense)/Income
Other income for the six months ended December 31, 2021 was $62 thousand, which was comprised of interest income. Other expenses for the six months ended December 31, 2020 were $3.3 million, consisting of $3.1million of debt discount amortization and interest expense and a loss on derivative liability valuation of $0.2 million.
Net Loss
The Company recorded a net loss of $28.1 million for the six months ended December 31, 2021, compared to a net loss of $23.9 million for the six months ended December 31, 2020. The period-over-period incremental loss of $4.2 million, or 17.7%, was primarily driven by an increase in cost of revenue of $3.2 million, an increase in G&A expenses and R&D expenses of $8.0 million. These expense increases were partially offset by a revenue increase of $3.6 million and a decrease in other expenses of $3.3 million.
Liquidity and Capital Resources
Since inception,Financing Activities
During the six months ended December 31, 2021, the Company has recordedsold a total of 2,468,477 shares of its common stock at a price to the public of an average of $7.70 per share under the ATM Equity OfferingSM Sales Agreement with BofA Securities, Inc. and Piper Sandler & Co., as amended on February 19, 2021 (the “Sales Agreement”) for aggregate gross proceeds of approximately $1,039,000$19.1 million, before deducting compensation paid to the sales agents and $615,000other offering expenses of revenue from contract researchapproximately $0.3 million.
Balance Sheet and government grants and engineering review services, respectively. Our operations thus far have been funded primarily with contract research and government grants, sales of our equity securities, and debt.Working Capital
The Company has $9.7had $67.5 million of cash and cash equivalents on hand as of February 1, 2018,December 31, 2021, which reflects an increasea decrease of $0.1$20.9 million compared to $9.6$88.3 million as of June 30, 2017.2021. The $0.1 million increasedecrease is mostlyprimarily due to the receipt of $13.3 million in net proceeds from sales of our common stock during the three months ended December 31, 2017, offset primarily by $13.2 million in net cash used in operatingoperations of $23.5 million and cash used for investing activities and capital expenditures from July 1, 2017 to February 1, 2018.of $16.6 million. These cash uses were partially offset by cash provided by financing activities of $19.3 million. The Company estimates that cash on hand will be sufficient to fund its operations, including current capital expense commitments, intobeyond the first quarternext twelve months from the date of fiscal 2019. Asfiling of this Form 10-Q. However, the Company has historically incurred recurring operating losses and will continue to do so until it generates sufficient revenues from operations; as a result, we willmay need to obtain additional capital through the sale of additional equity securities, debt, and additional grants, or otherwise, to fund operations past that date. There is no assurance that the Company’s projections and estimates are accurate. Although theThe Company is actively managing and controlling the Company’s cash outflows to mitigate these risks, these matters raise substantial doubt about the Company’s ability to continue as a going concern. liquidity risks.
Balance Sheet and Working Capital
December 31, 20172021 compared to June 30, 20172021
As of December 31, 2017,2021, the Company had current assets of $12.3$75.4 million made up primarily of cash on hand of $11.7 million, accounts receivable$67.5 million. As of $299,000 and prepaid expenses of $182,000. Current assets as of the end of the prior year were $10.0 million. The increase inJune 30, 2021, current assets of $2.3were $93.2 million was due to a $2.1 million increase incomprised primarily of cash on hand and an increase in receivables of $299,000, which was partially offset by a decrease in inventory.$88.3 million.
Property, plantPlant and equipment, netEquipment was $12.3$40.2 million as of December 31, 2017,2021 as compared to $7.9a balance of $30.7 million as of June 30, 2017. The $4.4 million increase is mostly due to the purchase of R&D equipment for the NY facility.2021.
Other assets, primarily intangibles and deposits, were $265,000 as of December 31, 2017, compared to $217,000 as of June 30, 2017. The increase is primarily attributable to additional intangibles, and a deposit on an asset not yet in service as of December 31, 2017.
Total assets as of December 31, 2017 were $24.8 million, compared to $18.1 million at2021 and June 30, 2017.2021 were $134.1 million and $125.0 million, respectively.
Current liabilities as of December 31, 20172021 and June 30, 2021 were $3.1$7.1 million an increaseand $7.3 million, respectively.
Long-term liabilities totalled $3.3 million as of $1.7 millionDecember 31, 2021, compared to $1.4$0.3 million as of June 30, 2017.2021. The increase was mainly in accounts payable and accrued expenses ($1.7 million) mostlyis primarily due to payroll-related accruals, stock-based compensation accruals,the contingent liability and accruals recorded for fixed assetsdeferred tax liability which are discussed in process.Note 7 – Business Acquisition.
Long-term liabilities totaled $1.8Equity was $123.7 million as of December 31, 2017 and $1.72021, compared to $117.4 million as of June 30, 2017, representing the long-term contingent real estate liability associated with the acquisition of the STC-MEMS Business on June 26, 2017.
Stockholders’ equity was $19.9 million as of December 31, 2017, compared to $15.0 million as of June 30, 2017. The2021, an increase of $4.9$6.3 million, or 5.3%. This increase was primarily due to the $15.1 million increase in additional paid-in-capital primarily due to the recording(“APIC”) of stock-based compensation $2.6 million, and net proceeds from the issuance of common stock of $13.3 million, partially offset by the $10.2 million net loss recorded for the six months ended December 31, 2017.
Working capital as of December 31, 2017 was $9.2 million, compared to $8.7 million as of June 30, 2017. The primary use of cash was to fund operations as well as invest in additional R&D equipment.
Cash Flow Analysis
Operating activities used cash of $6.7$26.8 million for the six months ended December 31, 2017, compared2021 which was offset by the net loss for the three months ended December 31, 2021 of $28.1 million. The increase in APIC was primarily due to $2.1common stock issued for cash of $18.8 million, forstock-based compensation of $5.2 million.
Cash Flow Analysis
Operating activities used cash of $23.5 million during the six months ended December 31, 2016.2021 and $16.2 million during the comparative period ended December 31, 2020. The $4.6$7.3 million period- over-period increase in cash used was attributable to higher operating expenses of $4.7 million associated with the ramp up of development and commercialization activities (primarily R&D and commercialization activitiesproduction personnel and the increased costs associated with the New York facility acquired in June 2017, in addition to $0.9 million less in fair value of contingent liability. This was partially offset by an increase of accounts payable and accrued expenses of $0.7 million, and higher period-over-period depreciation expense of $0.4 million. material costs).
Investing activities used cash of $4.5$16.6 million for the six months ended December 31, 2017,2021 compared to $0.5$4.5 million for the six monthscomparative period ended December 31, 2016.2020. The $12.1 million period-over-period increase was mostlyprimarily due to investmentsincreased purchases of production equipment of $8.4 million and net cash paid for acquisitions of $4.1 million. On October 15, 2021, the Company acquired a 51% ownership interest in fixed assetsRFMi from Tai-Saw Technology Co., Ltd. (“TST”) in exchange for our NY facility$6.0 million in cash and approximately $2.5 million payable in common stock of the Company. The Company has the option to enhance our developmentacquire the remaining 49% ownership interest in RFMi from TST on or before June 30, 2022, for an additional $3.5 million in cash and commercialization efforts.approximately $4.0 million in common stock of the Company. Additionally, earn-out payments aggregating up to $3.0 million payable in cash and/or shares of common stock of the Company may be payable to TST based on the future operating results of RFMi.
Financing activities providedincreased cash of $13.3by $19.3 million for the six months ended December 31, 2017, compared to $3.5 million for the six months ended December 31, 2016 due to proceeds we received from the issuance of common stock during the six months ended December 31, 2017.2021 primarily due to proceeds from issuance of common stock pursuant to the Sales Agreement. In addition, stock option grants, warrant exercises and the employee stock purchase plan resulted in cash proceeds of $0.5 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system ofWe maintain disclosure controls and procedures (as definedthat are designed to ensure that information required to be disclosed in Rules 13a-15(e) and 15d-15(e)the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that, is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is(1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is(2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We conducted an evaluation under the supervision andAs of December 31, 2021, our management, with the participation of our Chief Executive Officer and ourInterim Chief Financial Officer, (our principal executive officer and principal financial officer) ofevaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Interim Chief Financial Officer have concluded based upon the evaluation described above that, as of December 31, 2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that2021, our disclosure controls and procedures were not effective as of such date due to (i)at the material weakness in our internal control over financial reporting described in Part II, Item 9A of our 2017 Annual Report, which material weakness relates to our acquisition accounting and reporting practices in connection with the acquisition of our New York wafer fabrication facility and related operations; and (ii) a material weakness in the design of our internal controls related to our accounting for and reporting of stock-based compensation.reasonable assurance level.
Remediation Plan
We cannot yet estimate when the material weaknesses in our internal control over financial reporting will be fully remediated. Since the filing of our 2017 Annual Report, we have hired three additional individuals into the finance and accounting team, including a new Corporate Controller, Director of Tax and Treasury, and Accounting Manager. While these new hires increase the size and capabilities of our accounting department in accordance with our previously disclosed remediation plan, in order to fully remediate the material weaknesses, we intend to take the following additional actions to improve the overall process of our acquisition and stock-based compensation accounting and reporting practices:
Changes in Internal Control over Financial Reporting
Other than as set forth above in this Item 4,During the quarter ended December 31, 2021, there have beenwere no changes in our internal control over financial reporting, that occurred duringas such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the quarterly period covered by this reportSecurities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial condition or results of operations and prospects.
WeExcept for the matter described in “Note-12 – Commitments and Contingencies” of the condensed consolidated financial statements in this Item 1 of Part I of this Quarterly Report on Form 10-Q, which description is incorporated in this “Item 1. Legal Proceedings” by reference, we are currently not aware of any material pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.
ThereIn addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Except as set forth below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk“Risk Factors,” included in our 20172021 Annual Report.
We are, and may become, subject to claims of infringement, misappropriation or misuse of third party intellectual property that, regardless of merit, could result in significant expense and loss of our intellectual property rights.
The semiconductor industry is characterized by the vigorous pursuit and protection of intellectual property rights. We have not undertaken a comprehensive review of the rights of third parties in our field. From time to time, we may be named in lawsuits or receive notices or inquiries from third parties regarding our products or the manner in which we conduct our business suggesting that we may be infringing, misappropriating or otherwise misusing patent, copyright, trademark, trade secret and other intellectual property rights. Any claims that our technology infringes, misappropriates or otherwise misuses the rights of third parties, regardless of their merit or resolution, could be expensive to litigate or settle and could divert the efforts and attention of our management and technical personnel, cause significant delays and materially disrupt the conduct of our business. We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required to:
● | pay substantial damages, including treble damages if we were held to have willfully infringed; |
● | cease the manufacture, offering for sale or sale of the infringing technology or processes; |
● | expend significant resources to develop non-infringing technology or processes; |
● | obtain a license from a third party, which may not be available on commercially reasonable terms, or may not be available at all; or |
● | lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others. |
On October 4, 2021, the Company was named as a defendant in a complaint filed by Qorvo, Inc. in the United States District Court for the District of Delaware alleging, among other things, patent infringement, false advertising, false patent marking, and unfair competition. The plaintiff seeks an injunction enjoining us from the alleged infringement and damages, including punitive and statutory enhanced damages, in an unspecified amount. We believe this lawsuit is without merit and intend to defend against it vigorously. However, we can provide no assurance as to the outcome of such dispute, and such action may result in judgments against us for an injunction, significant damages or other relief, such as future royalty payments to Qorvo, Inc. or restrictions on certain of our activities. Resolution of such matter may be prolonged and costly, and the ultimate result or judgment is uncertain due to the inherent uncertainty in litigation and other proceedings. Even if ultimately settled or resolved in our favor, this and other possible future actions may result in significant expenses, diversion of management and technical personnel attention and disruptions and delays in our business and product development, and other collateral consequences, all of which could have a material adverse effect on our business, financial condition and results of operations. Any out-of-court settlement of this or other actions may also have an adverse effect on our business, financial condition and results of operations, including, but not limited to, substantial expenses, the payment of royalties, licensing or other fees payable to third parties, or restrictions on our ability to develop, manufacture and sell our products.
Defense of any intellectual property infringement claims against us, regardless of their merit, would involve substantial litigation expense and would be a significant diversion of resources from our business. In the event of the foregoing or another successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, limit our business to avoid the infringing activities, pay royalties and/or redesign our infringing technology or alter related formulations, processes, methods or other technologies, any or all of which may be impossible or require substantial time and monetary expenditure. The occurrence of any of the above events could prevent us from continuing to develop and commercialize our filters and our business could materially suffer.
In addition, our agreements with prospective customers and manufacturing partners may require us to indemnify such customers and manufacturing partners for third party intellectual property infringement claims. Pursuant to such agreements, we may be required to defend such customers and manufacturing partners against certain claims that could cause us to incur additional costs. While we endeavor to include as part of such indemnification obligations a provision permitting us to assume the defense of any indemnification claim, not all of our current agreements contain such a provision and we cannot provide any assurance that our future agreements will contain such a provision, which could result in increased exposure to us in the case of an indemnification claim.
We have recently engaged, and may in the future engage, in acquisitions that could disrupt our business, cause dilution to our shareholders and harm our financial condition and operating results.
In October 2021, we acquired a majority ownership position in RFM Integrated Device, Inc. (“RFMi”), with the right to purchase the remaining 49% on or before June 30, 2022. The consideration for the acquisition includes cash and common stock as well as possible earn-out payments that may be paid in cash or common stock based on its future trading price. We may in the future make additional acquisitions of, or investments in, companies that we believe have products or capabilities that are a strategic or commercial fit with our current business or otherwise offer opportunities for our company. In connection with these acquisitions or investments, we may:
● | issue common stock or other forms of equity that would dilute our existing shareholders’ percentage of ownership, |
● | incur debt and assume liabilities, and |
● | incur amortization expenses related to intangible assets or incur large and immediate write-offs. |
We may not be able to complete acquisitions on favorable terms, if at all. If we do complete an acquisition, such as of RFMi, we cannot assure you that it will ultimately strengthen our competitive position, that it will be viewed positively by customers, financial markets or investors or that we will otherwise realize the expected benefits of such an acquisition to the anticipated extent or at all. Furthermore, the acquisition of RFMi and any future acquisitions could pose numerous additional risks to our expected operations, including, but not limited to:
● | problems integrating the purchased business, products or technologies, |
● | challenges in achieving strategic objectives, cost savings and other anticipated benefits, |
● | increases to our expenses, |
● | the assumption of significant liabilities, which may have been previously unknown or not discoverable through diligence, that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party, |
● | inability to maintain relationships with prospective key customers, vendors and other business partners of the acquired businesses, |
● | diversion of management’s attention from its day-to-day responsibilities, |
● | difficulty in maintaining controls, procedures and policies during the transition and integration, |
● | entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions, |
● | potential loss of key employees, particularly those of the acquired entity, and |
● | historical financial information may not be representative or indicative of our results as a combined company. |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.1
Repurchases
Unvested restricted stock awards granted under the Akoustis, Inc. 2014 Stock Plan (the “2014 Plan”) and the Akoustis Technologies, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) are subject to repurchase options upon certain terminations of the respective recipient’s service with the Company. Under the terms of the respective award agreements, repurchases will generally be made for no value or for par value. In connection with the resignations of two employees, the Company delivered notices to such employees in September 2017, notifying them that the Company would repurchase an aggregate 58,152 shares of restricted stock from them pursuant to the terms of their respective award agreements. We completed these repurchases during the second quarter of fiscal 2018, as shown in the table below.
Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) | |||||||||||||
October 2017 | — | — | — | 831,030 | |||||||||||||
November 2017 | — | — | — | 821,030 | |||||||||||||
December 2017 | 58,152 | — | 58,152 | 685,506 | |||||||||||||
Total | 58,152 | — | 58,152 | 685,506 |
Unregistered Sales of Equity Securities
Other than as described below and any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.
On November 12, 2021, the Company issued 262,533 shares of its common stock to Tai-Saw Technology Co. Ltd. as partial payment for its 51% ownership interest in RFMi. These shares of Company common stock were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof as transactions by an issuer not involving any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None. Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.Not applicable
The exhibits in the Exhibit Index below are filed or furnished, as applicable, as part of this report.
* Filed herewith
† Management contract or compensatory arrangement
* | Filed herewith |
† | Management contract or compensatory plan or arrangement |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: | Akoustis Technologies, Inc. | |
By: | /s/ | |
Interim Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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