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~~March 31, ~~2018~~2019

☐	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	(I.R.S. Employer
incorporation or organization)	Identification No.)

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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	AKTS	The Nasdaq Stock Market LLC

As of ~~January 28,~~May 6, 2019, there were ~~29,913,203~~30,056,626 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 ENDED~~DECEMBER~~MARCH 31, ~~2018~~2019

TABLE OF CONTENTS

		Page No.

	PART I — FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2018 (unaudited)~~2019 and June 30, 2018 (unaudited)		2

Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~2018 (unaudited)		3

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended March 31, 2019 and 2018 (unaudited)		4

Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~2018 (unaudited)		45

Notes to the Condensed Consolidated Financial Statements (unaudited)		56

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1719

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2426

ITEM 4.	CONTROLS AND PROCEDURES	2527

	PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	25

~~ITEM 1A.~~	~~RISK FACTORS~~	25

~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	27

ITEM 3.1A.	~~DEFAULTS UPON SENIOR SECURITIES~~RISK FACTORS	27

ITEM 4.2.	~~MINE SAFETY DISCLOSURES~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2729

ITEM 5.3.	~~OTHER INFORMATION~~DEFAULTS UPON SENIOR SECURITIES	2729

ITEM 6.4.	~~EXHIBITS~~MINE SAFETY DISCLOSURES	27

~~EXHIBIT INDEX~~		2829

ITEM 5.	~~SIGNATURES~~OTHER INFORMATION	29

ITEM 6.	EXHIBITS	29

EXHIBIT INDEX		30

SIGNATURES		31

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

Akoustis Technologies, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

December 31, June 30,
2018 2018
(Unaudited)
Assets

Assets:
Cash and cash equivalents $ 42,083,681 $ 14,816,717
Accounts receivable 312,623 214,659
Inventory 106,847 57,556
Prepaid expenses 337,233 305,942
Other current assets 582,277 484,173
Total current assets 43,422,661 15,879,047

Property and equipment, net 13,382,557 12,820,169

Intangibles, net 320,518 264,295

Assets held for sale, net 300,000 333,250

Other assets 136,156 11,155
Total Assets $ 57,561,892 $ 29,307,916

Liabilities and Stockholders' Equity

Current Liabilities:
Accounts payable and accrued expenses $ 2,543,745 $ 2,593,432
Deferred revenue 41,558 52,938
Total current liabilities 2,585,303 2,646,370

Long-term Liabilities:
Contingent real estate liability 1,330,411 1,229,966
Convertible notes payable, net 16,965,200 11,464,632
Other long-term liabilities 129,586 117,086
Total long-term liabilities 18,425,197 12,811,684

Total Liabilities 21,010,500 15,458,054

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; 29,910,453 and 22,203,437 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively 29,910 22,203
Additional paid in capital 88,800,774 52,074,343
Accumulated deficit (52,279,292 ) (38,246,684 )
Total Stockholders' Equity 36,551,392 13,849,862
Total Liabilities and Stockholders' Equity $ 57,561,892 $ 29,307,916

	March 31,		June 30,
	2019		2018

Assets

Assets:
Cash and cash equivalents	$	34,633,363	$	14,816,717
Accounts receivable		159,346		214,659
Inventory		149,807		57,556
Prepaid expenses		296,906		305,942
Other current assets		590,203		484,173
Total current assets		35,829,625		15,879,047

Property and equipment, net		15,484,870		12,820,169

Intangibles, net		351,747		264,295

Assets held for sale, net		300,000		333,250

Other assets		198,656		11,155
Total Assets	$	52,164,898	$	29,307,916

Liabilities and Stockholders’ Equity

Current Liabilities:
Accounts payable and accrued expenses	$	2,800,321	$	2,593,432
Deferred revenue		3,920		52,938
Total current liabilities		2,804,241		2,646,370

Long-term Liabilities:
Contingent real estate liability		425,228		1,229,966
Convertible notes payable, net		19,099,589		11,464,632
Other long-term liabilities		135,836		117,086
Total long-term liabilities		19,660,653		12,811,684

Total Liabilities		22,464,894		15,458,054

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; 30,008,412 and 22,203,437 shares issued and outstanding at March 31, 2019 and June 30, 2018, respectively		30,008		22,203
Additional paid in capital		91,383,199		52,074,343
Accumulated deficit		(61,713,203)		(38,246,684	)
Total Stockholders’ Equity		29,700,004		13,849,862
Total Liabilities and Stockholders’ Equity	$	52,164,898	$	29,307,916

See accompanying notes to the condensed consolidated financial statements

Akoustis Technologies, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

For the
Three
Months
Ended
December
31, 2018

For the
Three
Months
Ended
December
31, 2017
For the Six
Months
Ended
December
31, 2018
For the Six
Months
Ended
December
31, 2017

Revenue
Revenue with customers $ 323,276 $ 297,321 $ 526,825 $ 598,261
Grant revenue — 147,232 109,472 147,232
Total revenue 323,276 444,553 636,297 745,493

Cost of revenue 369,946 329,836 513,790 523,065

Gross profit (46,670 ) 114,717 122,507 222,428

Operating expenses
Research and development 4,522,247 3,473,031 8,928,429 6,477,396
General and administrative expenses 1,785,758 2,189,904 4,245,298 4,022,526
Total operating expenses 6,308,005 5,662,935 13,173,727 10,499,922

Loss from operations (6,354,675 ) (5,548,218 ) (13,051,220 ) (10,277,494 )

Other (expense) income
Interest (expense) income (743,799 ) 263 (1,225,401 ) 997
Rental income 68,670 86,844 137,341 172,188
Change in fair value of contingent real estate liability (53,521 ) (79,305 ) (100,445 ) (79,305 )
Change in fair value of derivative liabilities 338,000 — 186,701 —
Total other (expense) income (390,650 ) 7,802 (1,001,804 ) 93,880
Net loss $ (6,745,325 ) $ (5,540,416 ) $ (14,053,024 ) $ (10,183,614 )

Net loss per common share - basic and diluted $ (0.24 ) $ (0.27 ) $ (0.56 ) $ (0.52 )

Weighted average common shares outstanding - basic and diluted 27,853,225 20,167,681 25,045,913 19,667,770

~~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, 2018 December 31, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (14,053,024 ) $ (10,183,614 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,187,319 478,495
Share-based compensation 3,266,679 2,076,829
Amortization of debt discount 770,835 —
Change in fair value of derivative liabilities (186,701 ) —
Change in fair value of contingent real estate liability 100,445 79,305
Changes in operating assets and liabilities:
Accounts receivable (97,964 ) (298,797 )
Inventory (49,291 ) 113,497
Prepaid expenses (31,291 ) (23,850 )
Other current asset (60,552 ) 259
Other assets (125,001 ) (22,146 )
Accounts payable and accrued expenses 737,246 982,729
Change in other long-term liabilities 12,500 —
Deferred revenue (28,516 ) 62,947
Net Cash Used In Operating Activities (8,557,316 ) (6,734,346 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for machinery and equipment (1,749,249 ) (4,471,121 )
Cash received from sale of assets held for sale 33,250 —
Cash paid for intangibles (56,681 ) (33,250 )
Net Cash Used In Investing Activities (1,772,680 ) (4,504,371 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 28,659,168 13,258,063
Proceeds from exercise of warrants 70,520 47,665
Proceeds received from convertible notes, net 8,867,272 —
Net Cash Provided By Financing Activities 37,596,960 13,305,728

Net Increase (Decrease) in Cash 27,266,964 2,067,011

Cash - Beginning of Period 14,816,717 9,631,520

Cash - End of Period $ 42,083,681 $ 11,698,531

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes $ — $ —
Interest $ — $ 199

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Accrued interest paid in common shares $ 533,539 $ —
ASC 606 transition adjustment 20,416 —
Warrants issued for stock issuance costs — 645,757
Convertible Notes – Beneficial Conversion Feature 3,950,839 —
Accrued capital expenditures — 428,691

	For the Three Months Ended March 31, 2019			For the Three Months Ended March 31, 2018			For the Nine Months Ended March 31, 2019			For the Nine Months Ended March 31, 2018

Revenue
Revenue with customers	$	237,463		$	284,408		$	764,288		$	882,669
Grant revenue		—			—			109,472			147,232
Total revenue		237,463			284,408			873,760			1,029,901

Cost of revenue		299,433			308,288			813,223			831,353

Gross profit		(61,970	)		(23,880	)		60,537			198,548

Operating expenses
Research and development		5,547,341			3,044,957			14,475,770			9,522,353
General and administrative expenses		2,460,328			2,441,992			6,705,626			6,464,518
Total operating expenses		8,007,669			5,486,949			21,181,396			15,986,871

Loss from operations		(8,069,639	)		(5,510,829	)		(21,120,859	)		(15,788,323	)

Other (expense) income
Interest (expense) income		(780,698	)		139			(2,006,099	)		1,136
Rental income		69,644			72,637			206,985			244,825
Other income		—			352			—			352
Change in fair value of contingent real estate liability		905,183			635,061			804,738			555,756
Change in fair value of derivative liabilities		(1,558,401	)		—			(1,371,700	)		—
Total other (expense) income		(1,364,272	)		708,189			(2,366,076	)		802,069
Net loss	$	(9,433,911	)	$	(4,802,640	)	$	(23,486,935	)	$	(14,986,254	)

Net loss per common share - basic and diluted	$	(0.31	)	$	(0.22	)	$	(0.88	)	$	(0.73	)

Weighted average common shares outstanding - basic and diluted		29,959,908			22,284,528			26,659,999			20,499,917

See accompanying notes to the condensed consolidated financial statements

Akoustis Technologies, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	Common Stock						Additional
	Shares			Amount			Paid In Capital			Accumulated Deficit			Stockholders’ Equity

Balance, June 30, 2018		22,203,437			22,203			52,074,343			(38,246,684	)		13,849,862
Cumulative-effect adjustment from adoption of ASC 606		—			—			—			20,416			20,416
Common stock issued for cash, net of issuance costs		—			—			(80,944	)		—			(80,944	)
Common stock issued for services		111,875			112			1,946,916			—			1,947,028
Common stock issued for exercise of warrants		19,086			19			70,501			—			70,520
Vesting of restricted shares		—			—			351,035			—			351,035
Common stock issued in payment of note interest		40,024			40			289,750			—			289,790
Net loss		—			—			—			(7,307,699	)		(7,307,699	)

Balance, September 30, 2018		22,374,422			22,374			54,651,601			(45,533,967	)		9,140,008
Common stock issued for cash, net of issuance costs		7,362,365			7,362			28,732,750			—			28,740,112
Common stock issued for services		120,744			121			1,044,195			—			1,044,316
Common stock issued for exercise of warrants		—			—			—			—			—
Intrinsic value of beneficial conversion feature		—			—			3,950,839			—			3,950,839
Vesting of restricted shares		—			—			177,693			—			177,693
Common stock issued in payment of note interest		52,922			53			243,697			—			243,750
Net loss		—			—			—			(6,745,325	)		(6,745,325	)

Balance, December 31, 2018		29,910,453			29,910			88,800,775			(52,279,292	)		36,551,393
Common stock issued for cash, net of issuance costs		1,227			1			(1	)		—			—
Common stock issued for services		46,000			46			2,125,610			—			2,125,656
Common stock issued for exercise of warrants		15,697			16			(28	)		—			(12	)
Common stock issued for exercise of options		18,750			19			133,481			—			133,500
Vesting of restricted shares		—			—			79,633			—			79,633
Common stock issued in payment of note interest		37,410			38			243,707			—			243,745
Repurchase of common shares		(21,125	)		(22	)		22			—			—
Net loss		—			—			—			(9,433,911	)		(9,433,911	)
Balance, March 31, 2019		30,008,412		$	30,008		$	91,383,199		$	(61,713,203	)	$	29,700,004

Balance, June 30, 2017		19,075,050		$	19,075		$	31,499,889		$	(16,508,057	)	$	15,010,907
Common stock issued for cash, net of issuance costs		—			—			—			—			—
Common stock issued for services		100,000			100			536,895			—			536,995
Common stock issued for exercise of warrants		9,533			10			47,655			—			47,665
Vesting of restricted shares		—			—			117,045			—			117,045
Net loss		—			—			—			(4,643,198	)		(4,643,198	)

Balance, September 30, 2017		19,184,583			19,185			32,201,484			(21,151,255	)		11,069,414
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		11,000			11			2,043,816			—			2,043,827
Common stock issued for exercise of warrants		—			—			—			—			—
Vesting of restricted shares		—			—			(254,824	)		—			(254,824	)
Repurchase of common shares		(58,152	)		(58	)		58			—			—
Net loss		—			—			—			(5,540,416	)		(5,540,416	)

Balance, December 31, 2017		22,320,700			22,321			46,599,657			(26,691,671	)		19,930,307
Common stock issued for cash, net of issuance costs		—			—			(58,133	)		—			(58,133	)
Warrants issued to underwriter		—			—			—			—			—
Common stock issued for services		20,000			20			1,693,246			—			1,693,266
Common stock issued for exercise of warrants		2,000			2			2,998			—			3,000
Vesting of restricted shares		—			—			(26,552	)		—			(26,552	)
Repurchase of common shares		(110,500	)		(111	)		111			—			—
Net loss		—			—			—			(4,802,640	)		(4,802,640	)
Balance, March 31, 2018		22,232,200			22,232			48,211,327			(31,494,311	)		16,739,248

See accompanying notes to the condensed consolidated financial statements.

Akoustis Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Nine Months Ended			For the Nine Months Ended
	March 31, 2019			March 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(23,486,935	)	$	(14,986,254	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,814,590			796,258
Share-based compensation		5,521,980			3,628,331
Amortization of debt discount		1,346,823			—
Change in fair value of derivative liabilities		1,371,700			—
Loss on disposal of fixed assets		(38,358	)		—
Non cash interest payments		777,285			—
Change in fair value of contingent real estate liability		(804,738	)		(555,756	)
Changes in operating assets and liabilities:
Accounts receivable		55,313			(518,920	)
Inventory		(92,251	)		118,971
Prepaid expenses		9,036			(71,556	)
Other current asset		(68,478	)		(16,090	)
Other assets		(187,501	)		(1,596	)
Accounts payable and accrued expenses		410,271			407,961
Change in other long-term liabilities		18,750			—
Deferred revenue		(66,154	)		113,438
Net Cash Used In Operating Activities		(13,418,667	)		(11,085,213	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for machinery and equipment		(4,436,485	)		(5,282,617	)
Cash received from sale of assets held for sale		33,250			—
Cash paid for intangibles		(91,900	)		(42,123	)
Net Cash Used In Investing Activities		(4,495,135	)		(5,324,740	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		28,659,168			13,199,930
Proceeds from exercise of warrants		70,508			50,665
Proceeds from exercise of options		133,500			—
Proceeds received from convertible notes, net		8,867,272			—
Net Cash Provided By Financing Activities		37,730,448			13,250,595

Net Increase (Decrease) in Cash		19,816,646			(3,159,358	)

Cash - Beginning of Period		14,816,717			9,631,520

Cash - End of Period	$	34,633,363		$	6,472,162

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes	$	—		$	—
Interest		255,702			199

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Stock compensation payable	$	203,381		$	163,746
ASC 606 transition adjustment		20,416			—
Warrants issued for stock issuance costs		—			645,757
Convertible Notes – Beneficial Conversion Feature		3,950,839			—
Reclassification of fixed assets to assets held for sale, net		—			117,023

See accompanying notes to the condensed consolidated financial statements

AKOUSTIS TECHNOLOGIES, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization

Akoustis Technologies, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on April 10, 2013. Effective December 15, 2016, the Company changed its state of incorporation from the State of Nevada to the State of Delaware. Through its subsidiary, Akoustis, Inc. (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 wireless industry, including for products such as smartphones and tablets, cellular infrastructure equipment, and WiFi 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 has developed a family of novel, high purity acoustic piezoelectric materials as well as a unique MEMS wafer process, collectively referred to as XBAW™ technology. The Company leverages its ~~internal designs and~~integrated device manufacturing (IDM) business model to develop and sell high performance RF filters using its XBAW^TM technology. Filters are critical in selecting and rejecting signals, and their performance enables differentiation in the modules defining the RFFE.

Note 2. Liquidity

At ~~December~~March 31, ~~2018,~~2019, the Company had cash and cash equivalents of ~~$42.1~~$34.6 million and working capital of ~~$40.8~~$33.0 million. The Company has historically incurred recurring operating losses, and has experienced net cash used in operating activities of ~~$8.6~~$13.4 million for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019, which ~~raise~~raises substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date.

However, as of ~~January 28,~~May 6, 2019, the Company had ~~$40.7~~$32.8 million of cash and cash equivalents, which ~~alleviated any substantial doubt about~~funds are expected to be sufficient to fund our operations beyond the ~~Company’s ability to continue as a going concern.~~next twelve months from the date of 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. ~~These~~However, the Company has no commitments to obtain any additional funds, ~~are expected~~and there can be no assurance such funds will be 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 ~~sufficient~~materially adversely affected and it may not be able to ~~fund our~~continue operations ~~beyond the next twelve months from the date of filing of this Form 10-Q.~~or execute its stated commercialization plan.

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

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. 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 filing of this Form 10-Q. Operating results for the quarter ended ~~December~~March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019 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 Form 10-K filed with the SEC on August 29, 2018 (the “2018 Annual Report”).

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Akoustis, Inc. On February 22, 2018, Akoustis Manufacturing New York, Inc. was merged into Akoustis, Inc., with Akoustis, Inc. as the surviving entity. All significant intercompany accounts and transactions have been eliminated in consolidation.

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are disclosed in Note 3-Summary of Significant Accounting Policies in the 2018 Annual Report. Since the date of the 2018 Annual Report, other than adopting ASC 606 “Revenue From Contracts With Customers”discussed in the footnote below, 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. The policies, estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions, deferred taxes and related valuation allowances, revenue recognition, contingent real estate liability and the fair values of long-lived assets. Actual results could differ from the estimates.

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 311,328 shares and 862,821 shares as of March 31, 2019 and 2018, respectively. Shares of restricted stock are included in the calculation of weighted average shares outstanding.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers (Topic 606), and in May 2016, the FASB issued ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients. These standards and their effect on the Company’s consolidated financial statements and related disclosures are discussed above under “Revenue Recognition.”

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases”(Topic 842) and subsequently amended certain aspects during March 2019 with ASU2019-01. The FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted, and entities may also elect the optional transition method provided under ASU 2018-11,Leases, Topic 842: Targeted Improvement,issued in July 2018, allowing for application of the standard at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company does not expect the new standard will have a material effect on the consolidated financial statements and related disclosures.

In July 2018, the FASB issued ASU 2018-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company elected to early adopt ASU 2018-11 in May 2018, in the recording of the $15.0 million convertible notes.

In June 2018, the FASB issued ASU No. 2018-07,Compensation – Stock Compensation (Topic718): Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606,Revenue from Contracts with Customers(as described above under “Revenue Recognition”). The Company does not believe the new standard will have a significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.

Note 4. Revenue Recognition from Contracts with Customers

Effective as of July 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing ~~accounting principles generally accepted in the~~ U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

The Company adopted this guidance and related amendments as of the first quarter of fiscal 2019, applying the modified retrospective transition method. The Company has determined that there was a $20,416 adjustment needed to retained earnings due to the application of the standard on contracts not completed at the date of initial application.

To achieve this core principle, the Company applies the following five steps:

Step l - Identify the Contract with the Customer - A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and (e) it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Step 2 - Identify Performance Obligations in the Contract - Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation. The Company considers the performance obligation in a product sale to be title transfer of the specified product to the customer. The transfer of title occurs according to the purchase order (contract) specification. The Company considers performance obligations related to foundry fabrication services to be title transfer of the specified product or prototype to the customer. The transfer of title occurs according to the purchase order (contract) specification. In the absence of title transfer language, transfer occurs at the time of shipment.

Step 3 - Determine the Transaction Price - The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on the expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

Step 4 - Allocate the Transaction Price - After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

Step 5 - Satisfaction of the Performance Obligations (and Recognition of Revenue) - When an asset is transferred, and the customer obtains control of the asset (or the services are rendered), the Company recognizes revenue. At contract inception, the Company determines if each performance obligation is satisfied at a point in time or over time. The Company will recognize sales of its product in the period that title of the product is transferred to the customer. The Company will evaluate foundry fabrication services contracts on a case by case basis as they vary with regards to enforceable right and alternative use. If an unrestricted, enforceable right and no alternative use exists, the Company will recognize revenue over time utilizing the input method which the Company considers to be the best method of measuring progress toward complete satisfaction of the performance obligation. However, if either of these does not exist, the Company will recognize revenue at a point in time based on title transfer of the final prototype or specified product.

Disaggregation of Revenue

The Company’s primary revenue streams include foundry fabrication services and product sales.

Foundry Fabrication Services

Foundry fabrication services revenue includes microelectromechanical systems (“MEMS”) foundry services and Non-Recurring Engineering (“NRE”). Under these contracts, products are delivered to the customer at the completion of the service which represents satisfaction of the performance obligation. 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 point in time.

Product Sales

Product sales revenue consists of sales of RF filters and 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~~March 31, ~~2018:~~2019:

Foundry Services
Revenue RF Product
Revenue Total Revenue
with Customers
MEMS $ 26,803 $ — $ 26,803
NRE - RF Filters 232,967 — 232,967
Filters/Amps — 63,506 63,506
Total $ 259,770 $ 63,506 $ 323,276


	Foundry Fabrication Services Revenue		Product Sales Revenue		Total Revenue with Customers
MEMS	$	30,490		—	$	30,490
NRE - RF Filters		128,628		—		128,628
Filters/Amps		—		78,345		78,345
Total	$	159,118	$	78,345	$	237,463

The following table summarizes the revenues of the Company’s reportable segments for the ~~six~~nine months ended ~~December~~March 31, ~~2018:~~2019:


	Foundry Services Revenue		RF Product Revenue		Total Revenue with Customers		Foundry Fabrication Services Revenue		Product Sales Revenue		Total Revenue with Customers
MEMS	$	144,410	$	—	$	144,410	$	174,899		—	$	174,899
NRE – RF Filters		263,442		—		263,442		392,071		—		392,071
Filters/Amps		—		118,973		118,973		—		197,318		197,318
Total	$	407,852	$	118,973	$	526,825	$	566,970	$	197,318	$	764,288

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 Company records a receivable when the titleforgoods 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 theCondensed ConsolidatedBalance Sheet).

The following table summarizes the changes in revenue recognition for the ~~six~~nine months ended ~~December~~March 31, ~~2018:~~2019:

	Deferred Revenue			Deferred Revenue
Balance, June 30, 2018	$	52,938		$	52,938
Revenue recognized from prior year		(52,938	)		(52,938	)
Year to date invoicing in excess of revenue recognition		41,558			3,920
Balance, December 31, 2018	$	41,558
Balance, March 31, 2019				$	3,920

Additionally, when revenue recognition occurs prior to invoicing, a contract asset is recognized.

The following table summarizes the changes in contract assets, included in Other current assets on the Condensed Consolidated Balance Sheet, for the ~~six~~nine months ended ~~December~~March 31, ~~2018:~~2019:

Contract assets
Balance, June 30, 2018 $ 6,612
YTD revenue recognition in excess of billings 25,348
Balance, December 31, 2018 $ 31,960

	Contract assets
Balance, June 30, 2018	$	6,612
YTD revenue recognition in excess of billings		57,459
Balance, March 31, 2019	$	64,071

Backlog of Remaining Customer Performance Obligations

Revenue expected to be recognized and recorded as sales during this fiscal year from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) was $0.2 million at ~~December~~March 31, ~~2018.~~2019.

Grant Revenue

From time to time the Company applies for ~~the~~ grants from various government bodies (state & federal), such as the National Science Foundation (“NSF”), to support research and development. In addition, the Company is eligible for “matching awards” from state boards to provide additional funds to the Company to supplement the funds awarded under the federal grant program. The Company records grant revenue as a part of revenue from operations due to the fact that grant revenue is viewed as an ongoing function of its intended operations. The revenue from grants is not viewed as “incidental” or “peripheral” which would result in the presentation of grant revenue as “Other income”. The Company recognizes nonrefundable grant revenue when the performance obligations have been met, application has been submitted and approval is reasonably assured.

Note 5.~~Loss Per Share~~Common Stock Equivalents

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, 2018 and 2017 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~~March 31, ~~2018~~2019 and ~~2017:~~2018. These are excluded from the loss per share calculation as they are considered anti-dilutive.

December 31,
2018
December 31,
2017

Convertible Notes 4,960,800 —
Options 2,087,064 1,166,859
Warrants 728,493 756,809
Total 7,776,357 1,923,668

	March 31, 2019		March 31, 2018
Convertible Notes		4,960,800		—
Options		2,177,314		1,263,859
Warrants		708,651		754,809
Total		7,846,765		2,018,668

8 10

~~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 357,406 shares and 1,023,506 as of December 31, 2018 and 2017, respectively. Shares of restricted stock are included in the calculation of weighted average shares outstanding.

~~Recently Issued Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~,Note 6. Property and ~~in May 2016, the FASB issued ASU No. 2016-12,~~~~Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients~~~~. These standards and their effect on the Company’s consolidated financial statements and related disclosures are discussed above under “Revenue Recognition.”~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “~~~~Leases~~”~~(Topic 842)~~. The FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted, and entities may also elect the optional transition method provided under ASU 2018-11,~~Leases, Topic 842: Targeted Improvement,~~ issued in July 2018, allowing for application of the standard at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company does not expect the new standard will have a material effect on the consolidated financial statements and related disclosuresEquipment, net

~~In July 2017, the FASB issued ASU 2017-11, “~~Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company elected to early adopt ASU 2017-11 in May 2018, in the recording of the $15.0 million convertible notes.

~~In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07,~~~~Compensation – Stock Compensation (Topic718): Improvements to Nonemployee Share-Based Payment Accounting~~. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606,~~Revenue from Contracts with Customers~~~~(as described above under “Revenue Recognition”). The Company does not believe the new standard will have a significant impact on its consolidated financial statements.~~

~~Note 4. Property and Equipment~~

Property and equipment, net consisted of the following as of ~~December~~March 31, ~~2018~~2019 and June 30, 2018:

Estimated
Useful Life

December 31,
2018

June 30,
2018

Land n/a $ 1,000,000 $ 1,000,000
Building 11 years 3,000,000 3,000,000
Equipment 2-10 years 10,383,556 9,126,755
Other * 1,550,302 1,057,854
15,933,858 14,184,609
Less: Accumulated depreciation (2,551,301 ) (1,364,440 )
Total $ 13,382,557 $ 12,820,169

	Estimated Useful Life	March 31, 2019			June 30, 2018
Land	n/a	$	1,000,000		$	1,000,000
Building	11 years		3,000,000			3,000,000
Equipment	2-10 years		13,360,745			9,126,755
Other	*		1,260,349			1,057,854
			18,621,094			14,184,609
Less: Accumulated depreciation			(3,136,224	)		(1,364,440	)
Total		$	15,484,870		$	12,820,169

(*) Useful lives vary from 3-10 years, as well as leasehold improvements which 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 ~~$608,677~~$623,281 and ~~$237,109~~$313,438 for the three months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

The Company recorded depreciation expense of ~~$1,186,861~~$1,810,142 and ~~$470,419~~$783,857 for the ~~six~~nine months ended ~~December~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Note 5.7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following at ~~December~~March 31, ~~2018~~2019 and June 30, 2018:

December 31, 2018 June 30, 2018
Accounts payable $ 844,796 $ 139,152
Accrued salaries and benefits 301,651 505,463
Accrued bonuses 641,803 750,442
Accrued stock-based compensation 142,144 395,539
Accrued professional fees 153,525 293,024
Accrued utilities 119,266 103,277
Accrued interest 204,028 127,292
Accrued goods received not invoiced 86,654 160,199
Other accrued expenses 49,878 119,044
Totals $ 2,543,745 $ 2,593,432

	March 31, 2019		June 30, 2018
Accounts payable	$	315,015	$	139,152
Accrued salaries and benefits		545,921		505,463
Accrued bonuses		1,133,799		750,442
Accrued stock-based compensation		192,158		395,539
Accrued professional fees		203,302		293,024
Accrued utilities		105,293		103,277
Accrued interest		135,417		127,292
Accrued goods received not invoiced		95,423		160,199
Other accrued expenses		73,993		119,044
Totals	$	2,800,321	$	2,593,432

Note 6.8. Derivative Liabilities

The Company’s 6.5% Convertible Senior Secured Notes due 2023 issued in May 2018 contain certain derivative features, as described in Note 79 - Convertible Notes. The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the ~~six~~nine months ended ~~December~~March 31, ~~2018:~~2019:

	Fair Value Measurement Using Level 3 Inputs Total			Fair Value Measurement Using Level 3 Inputs Total
Balance, July 1, 2018	$	1,104,701		$	1,104,701
Change in fair value of derivative liabilities		(186,701	)		1,371,700
Balance, December 31, 2018	$	918,000
Balance, March 31, 2019				$	2,476,401

The fair value of the derivative features of the convertible note at the balance sheet dates were calculated using the with-and-without method, a form of the income approach, valued with the following weighted average assumptions:

December 31,
2018

June 30,
2018

Risk free interest rate 2.50 % 2.73 %
Dividend yield 0.00 % 0.00 %
Expected volatility 46.0 % 42.0 %
Remaining term (years) 4.41 4.92

	March 31, 2019			June 30, 2018
Risk free interest rate		2.22	%		2.73	%
Dividend yield		0.00	%		0.00	%
Expected volatility		48.0	%		42.0	%
Remaining term (years)		4.17			4.92

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Bill with a similar term on the date of the issuance.

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.

Volatility:The Company estimated the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price for a period consistent with the convertible notes’ expected term.

Remaining term: The Company’s remaining term is based on the remaining contractual term of the convertible notes.

The Company’s 6.5% Convertible Senior Notes due 2023 issued in October 2018 contain certain derivative features, as described in Note 79 - Convertible Notes; however, as of ~~December~~March 31, ~~2018~~2019 the fair value of these components recorded as a debt discount was $0.

Note 7.9. Convertible Notes

Convertible Notes Issued October 2018

On October 23, 2018 the Company completed the offering of $10.0 million principal amount of the Company’s 6.5% Convertible Senior Notes due 2023. The notes are unsecured and rank pari passu with the Company’s outstanding unsubordinated ~~liabilities.~~liabilities, including its 6.5% Convertible Senior Secured Notes due 2023 issued in May 2018. The net proceeds of the offering after payment of offering costs were approximately $8.9 million. The notes will mature on November 30, 2023, unless earlier converted, redeemed or repurchased. Interest on the notes accrues at the rate of 6.5% per year and is payable in cash on each February 28, May 31, August 31 and November 30, beginning February 28, 2019. The notes are convertible into common stock at the option of the holder at any time prior to maturity at an initial conversion price of $5.10 per share, subject to adjustment under certain circumstances.

The Company analyzed the components of the convertible notes for embedded derivatives and the application of the corresponding accounting treatment. This analysis determined that certain features of the notes represented derivatives that require bifurcation from the host contract. The fair value of these components of $0 was recorded as a debt discount and will be adjusted to fair value at the end of each future reporting period.

As a result of the Company issuing new shares of Common Stock for a price to the public of $4.25 per share, the Company adjusted the conversion price of the convertible notes issued on May 14, 2018 from $6.55 per share to $5.00 per share pursuant to the terms of the Indenture. As a result of this adjustment, the associated beneficial conversion feature was increased by $3,950,839 and recorded as a debt discount with a corresponding credit to additional paid in capital.

The following table summarizes convertible debt as of ~~December~~March 31, ~~2018:~~2019:

Maturity Date State Interest Rate Conversion
Price Face Value Remaining
Debt
(Discount) Fair Value of
Embedded
Conversion Option Carrying Value
Long Term convertible notes payable
6.5% convertible senior secured notes 5/31/2023 6.50 % $ 5.00 $ 15,000,000 $ (7,876,770 ) $ 909,000 $ 8,032,230
6.5% convertible senior notes 11/30/2023 6.50 % $ 5.10 $ 10,000,000 $ (1,076,030 ) $ — $ 8,923,970

Ending Balance as of December 31, 2018 $ 25,000,000 $ (8,952,800 ) $ 909,000 $ 16,956,200

	Maturity Date	State Interest Rate			Conversion Price		Face Value		Remaining Debt (Discount)			Fair Value of Embedded Conversion Option		Carrying Value
Long Term convertible notes payable
6.5% convertible senior secured notes	5/31/2023		6.50	%	$	5.00	$	15,000,000	$	(7,381,610	)	$	2,476,401	$	10,094,791
6.5% convertible senior notes	11/30/2023		6.50	%	$	5.10	$	10,000,000	$	(995,202	)	$	—	$	9,004,798

Ending Balance as of March 31, 2019							$	25,000,000	$	(8,376,812	)	$	2,476,401	$	19,099,589

Note 8.10. Concentrations

Vendors

Vendor concentration as a percentage of purchases for three and ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 are as follows:

Six Months Six Months Three Months Three Months
12/31/2018 12/31/2017 12/31/2018 12/31/2017
Vendor 1 10 % — 11 % —
Vendor 2 — — 10 % —

	Nine Months		Nine Months			Three Months			Three Months
	03/31/2019		03/31/2018			03/31/2019			03/31/2018
Vendor 1		—		12	%		—			—
Vendor 2		—		—			21	%		—

Customers

Customer concentration as a percentage of revenue for three and ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 are as follows:

	Six Months 12/31/2018			Six Months 12/31/2017			Three Months 12/31/2018			Three Months 12/31/2017			Nine Months 03/31/2019			Nine Months 03/31/2018			Three Months 03/31/2019			Three Months 03/31/2018
Customer 1		21	%		61	%		35	%		66	%		12	%		44	%		—			—
Customer 2		21	%		13	%		23	%		15	%		14	%		—			—			—
Customer 3		19	%		13	%		15	%		14	%		11	%		—			—			—
Customer 4		14	%		—			12	%		—			22	%		—			28	%		—
Customer 5														—			—			21	%		—
Customer 6														—			—			23	%		—
Customer 7														—			23	%		—			44	%
Customer 8														—			—			—			15	%

Note 9.11. Stockholders’ Equity

Underwritten Public Offering of Common Stock

During the quarter ended December 31, 2018, the Company sold a total of 7,250,000 shares of its common stock at a price to the public of $4.25 per share for aggregate gross proceeds of $30.8 million before deducting the underwriting discount and offering expenses payable by the Company of approximately $2.1 million. The Company expects to use the proceeds of the offering to fund the Company’s operations and growth of its business, including for capital expenditures, working capital, research and development, the commercialization of its technology and other general corporate purposes.

During the ~~quarter~~nine months ended ~~December~~March 31, ~~2018,~~2019, the Company also issued ~~112,365~~113,592 shares of its common stock to investors in the Company’s private placement that closed in May 2017. These issuances were made pursuant to the price-protection provisions granted to such investors in their subscription agreements.

Equity ~~incentive plans~~Incentive Plans

During the ~~six~~nine months ended ~~December~~March 31, ~~2018,~~2019, the Company granted employees and directors options to purchase an aggregate of ~~836,955~~953,455 shares of common stock with a weighted average grant date fair value of ~~$2.68.~~$2.82. 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:

			~~Six~~Nine Months Ended ~~December~~March 31, ~~2018~~2019
Exercise price			$3.78 – $8.18
Expected term (years)			4.00 – 7.00
Risk-free interest rate			~~2.62~~2.19 – 3.01%
Volatility			66 – 69%
Dividend yield			0%
Weighted Average Grant Date Fair Value of Options granted during the period			$~~2.68~~2.82

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.

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.

During the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 the Company awarded certain employees and contractors grants of an aggregate of ~~494,880~~676,880 restricted stock units (“RSUs”) with a weighted average grant date fair value of ~~$5.95.~~$6.10. 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 years.

During the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 the Company granted 119,500 performance-based restricted stock units (“PBRSU”) to employees with a weighted average grant date fair value per share of $8.30. The PBRSU awards contain performance and service conditions which must be satisfied for an employee to earn the award.

Any portion of grants awarded to consultants and other service providers as to which the repurchase option for restricted stock awards has not lapsed or for which an option or restricted stock unit has not vested is accrued on the Condensed Consolidated Balance Sheet as a component of accounts payable and accrued expenses. As of ~~December~~March 31, ~~2018,~~2019, and June 30, 2018, the accrued stock-based compensation was ~~$142,144~~$192,158 and $395,539, respectively.

Compensation expense related to our stock-based awards described above was as follows:

Three Months Ended December 31,
2018 2017
Share based compensation expense $ 1,168,367 $ 1,478,951

	Three Months Ended March 31,
	2019		2018
Share based compensation expense	$	2,255,301	$	1,551,500

Six Months Ended December 31,
2018 2017
Share based compensation expense $ 3,266,679 $ 2,076,831

	Nine Months Ended March 31,
	2019		2018
Share based compensation expense	$	5,521,980	$	3,628,331

Unrecognized stock-based compensation expense and weighted-average years to be recognized are as follows:

As of December 31, 2018

Unrecognized stock-
based compensation

Weighted-
average years
to be recognized

Options $ 3,531,756 2.98
Restricted stock awards/units $ 4,992,592 1.59
Performance based units $ 15,693 0.17

~~Note 10. Grant Agreement~~

On July 24, 2018 the Company executed a grant agreement with the Town of Canandaigua, through the Community Development Block Grant. The purpose of the grant is to provide financing in support of the purchase and installation of new machinery and equipment at the Company’s fabrication facility in Canandaigua, New York (the “NY Facility”) made between June 27, 2017 and June 27, 2019. The grant is subject to certain terms and conditions and allows for disbursement of up to $734,000 in grants. As of December 31, 2018, the Company had utilized $0 in grants to support the purchase and installation of new machinery and equipment.

	As of March 31, 2019
	Unrecognized stock- based compensation		Weighted- average years to be recognized
Options	$	3,360,742		2.02
Restricted stock awards/units	$	5,070,230		1.94
Performance based units	$	423,914		0.43

Note ~~11.~~12. Commitments and Contingencies

Operating Leases

The Company leased three office locations in Huntersville, NC pursuant to three- and five-year lease agreements, and one month-to-month lease. The three-year lease agreement expired in April 2018 in connection with a move in corporate office location, the month to month lease expired in January 2018, and the five-year lease agreement expires in November 2022. 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 ~~$36,898~~$37,000 and ~~$34,611~~$50,000 for the three months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The total lease rental expense was ~~$73,701~~$111,000 and ~~$51,718~~$101,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

The aggregate rent expense on various equipment for the Company’s Huntersville, NC location and the NY Facility is recognized on a straight-line basis over the lease term. The total lease rental expense was ~~$17,130~~$14,000 and ~~$67,611~~$1,000 for the three months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The total lease rental expense was ~~$36,842~~$50,000 and ~~$127,010~~$72,000 for the ~~six~~nine months ended ~~December~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Ontario County Industrial Development Authority Agreement

On February 27, 2018, the Company entered into a Lease 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 “OCIDA Agreements”), each dated as of February 1, 2018, with the Ontario County Industrial Development Agency, a public benefit corporation of the State of New York (the “OCIDA”). Pursuant to the OCIDA Agreements, the Company will lease 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 NY Facility), and transfer title to certain related equipment and personal property to the OCIDA. The OCIDA will lease such land and improvements 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 expects substantial tax savings during the term of the OCIDA Agreements, which expire on December 31, 2028. In addition, subject to the terms of the Lease and Project 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 one 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 OCIDA Agreements upon certain recapture events, including certain events of default.

Purchase Order

On January 14, 2019, the Company executed a price quotation (the “Purchase Order”) pursuant to which it purchased a semiconductor lithography system (the “System”), which will be used to pattern wafers for use in the production of the Company’s RF filter products, from ASML US, LLC (“ASML”). Upon execution of the purchase order the Company remitted 50% of the Purchase Price and, pursuant to the terms and conditions of the Purchase Order, the remainder of the Purchase Price will be due upon shipment and acceptance of the System.

Real Estate Contingent Liability

In connection with the acquisition of the NY Facility and related assets, including STC-MEMS, a semiconductor wafer-manufacturing and MEMS operation with associated wafer-manufacturing tools, the Company agreed to pay to Fuller Road Management Corporation, an affiliate of The Research Foundation for the State University of New York, 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 2, ending March 23, 2019 $ 3,973,333
Year 3, ending March 23, 2020 $ 1,986,667

		Maximum Penalty
Year 3, ending March 23, 2020		$	425,228

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 ~~17.0%~~16.8%. The discount rate was derived from a weighted average cost of capital, modified to include the effects of the bargain purchase price, and assumes a percentage chance of real estate sale of 25% ~~- 35% between years two and~~in year three. As of ~~December~~March 31, ~~2018,~~2019, and June 30, 2018, the fair value of the contingent liability was ~~$1,330,411~~$425,228 and $1,229,966 respectively. During the three months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, the Company marked the contingent liability to fair value and recorded a ~~loss~~gain of ~~($53,521)~~$905,183 and ~~($79,305),~~$635,061, respectively, relating to the change in fair value. During the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, the Company marked the contingent liability to fair value and recorded a ~~loss~~gain of ~~($100,445)~~$804,738 and ~~($79,305),~~$555,756, respectively, relating to the change in fair value.

Litigation, Claims and ~~Assessments~~Assessment

From time to time, the Company may become involved in lawsuits, investigations and claims that arise in the ordinary course of business, including the matter described below. The Company believes it has meritorious defenses against all pending claims and intends to vigorously pursue them. While it is not possible to predict or determine the outcomes of any pending actions, the Company believes the amount of liability, if any, with respect to such actions, would not materially affect its financial position, results of operations or cash flows.

On November 5, 2018 the Company filed a Form 8-K reporting the end of employment of its principal financial officer, John T. Kurtzweil (the “Former CFO”). Mr. Kurtzweil’s employment was terminated for cause unanimously by the Company’s Board of Directors pursuant to the terms of his employment agreement, and not due to any disagreement concerning the Company’s financial statements, accounting policies or accounting practices. The Former CFO disputes the termination for cause and has since filed for an arbitration hearing pursuant to the terms of his employment ~~agreement.~~agreement, and has filed a complaint under the whistleblower provisions of the Sarbanes Oxley Act of 2002 with the Occupational Safety and Health Administration of the U.S. Department of Labor. The Company has not recorded a loss contingency associated with the Former CFO’s termination. In accordance with the Former CFO’s employment agreement, if it is determined that grounds for termination were for cause then the expense to the Company would be $0. If it is determined that grounds were without cause then it would result in the cash expenditure of approximately ~~$208,000~~$206,000 representing 1 years’ salary, COBRA and cost of living expense, and prorated bonus up to the date of termination. Additionally, the Company would record a non-cash expense of approximately $883,000 representing the immediate full vesting of restricted stock units and stock options on the date of termination.

Tax Credit Contingency

The Company accrues a liability for indirect tax contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made.

The Company’s gross unrecognized indirect tax credits totaled $0.1 million and $0.1 million as of ~~December~~March 31, ~~2018~~2019 and June 30, 2018, respectively, and is recorded on the Condensed Consolidated Balance Sheet as a long-term liability.

Note ~~12.~~13. Related Party Transactions

AEG Consulting, a firm owned by one of the Co-Chairmen of the Company’s Board of Directors, received $0 and $10,245 cash compensation for consulting fees for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. On November 2, 2018, the Company granted the Co-Chairman 5,000 RSUs with a fair value on the grant date of $18,900 and stock options to purchase 10,000 shares of the Company’s common stock with a fair value on the grant date of $25,278 for consulting services provided by AEG Consulting. Both awards vest in four equal installments on each of the first four anniversaries of the grant date. The options carry an exercise price of $3.78 and have a term of 7 years.

Total share-based compensation expense related to stock-based awards granted for the Co-Chairman’s consulting services was ~~$14,119~~$31,854 and ~~$10,496~~$8,539 for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

On September 27, 2017, the Company granted a restricted stock award 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. Share based compensation expense related to this award was $15,467 and $10,617 for the six months ended December 31, 2018 and 2017, respectively.

Note ~~13.~~14. 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 two segments, Foundry Fabrication Services which consists of engineering review services and STC-MEMS foundry services, and RF Product which consists of amplifier and filter product sales, and grant revenue. The Company records all ~~of its~~ 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~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~2018 are as follows:

	Foundry Fabrication Services			RF Product			Total			Foundry/ Fabrication Services			RF Product			Total

Three months ended December 31, 2018
Three months ended March 31, 2019
Revenue	$	259,770		$	63,506		$	323,276		$	159,118		$	78,345		$	237,463
Grant revenue		—			—			—			—			—			—
Total Revenue		259,770			63,506			323,276			159,118			78,345			237,463
Cost of revenue		356,353			13,593			369,946			176,527			122,906			299,433
Gross margin		(96,583	)		49,913			(46,670	)		(17,409	)		(44,561	)		(61,970	)
Research and development		—			4,522,247			4,522,247			—			5,547,341			5,547,341
General and administrative		—			1,785,758			1,785,758			—			2,460,328			2,460,328
Income (Loss) from Operations	$	(96,583	)	$	(6,258,092	)	$	(6,354,675	)	$	(17,409	)	$	(8,052,230	)	$	(8,069,639	)

Three months ended December 31, 2017
Three months ended March 31, 2018
Revenue	$	291,833		$	5,488		$	297,321		$	255,160		$	29,248		$	284,408
Grant revenue		—			147,232			147,232			—			—			—
Total Revenue		291,833			152,720			444,553			255,160			29,248			284,408
Cost of revenue		329,556			280			329,836			304,528			3,760			308,288
Gross margin		(37,723	)		152,440			114,717			(49,368	)		25,488			(23,880	)
Research and development		—			3,473,031			3,473,031			—			3,044,957			3,044,957
General and administrative		—			2,189,904			2,189,904			—			2,441,992			2,441,992
Income (Loss) from Operations	$	(37,723	)	$	(5,510,495	)	$	(5,548,218	)	$	(49,368	)	$	(5,461,461	)	$	(5,510,829	)

Six months ended December 31, 2018
Nine months ended March 31, 2019
Revenue	$	407,851		$	118,974		$	526,825		$	566,970		$	197,318		$	764,288
Grant revenue		—			109,472			109,472			—			109,472			109,472
Total Revenue		407,851			228,446			636,297			566,970			306,790			873,760
Cost of revenue		489,380			24,410			513,790			665,908			147,315			813,223
Gross margin		(81,529	)		204,036			122,507			(98,938	)		159,475			60,537
Research and development		—			8,928,429			8,928,429			—			14,475,770			14,475,770
General and administrative		—			4,245,298			4,245,298			—			6,705,626			6,705,626
Income (Loss) from Operations	$	(81,529	)	$	(12,969,691	)	$	(13,051,220	)	$	(98,938	)	$	(21,021,921	)	$	(21,120,859	)

Six months ended December 31, 2017
Nine months ended March 31, 2018

Revenue	$	589,733		$	8,528		$	598,261		$	844,893		$	37,776		$	882,669
Grant revenue		—			147,232			147,232			—			147,232			147,232
Total Revenue		589,733			155,760			745,493			844,893			185,008			1,029,901
Cost of revenue		522,585			480			523,065			827,113			4,240			831,353
Gross margin		67,148			155,280			222,428			17,780			180,768			198,548
Research and development		—			6,477,396			6,477,396			—			9,522,353			9,522,353
General and administrative		—			4,022,526			4,022,526			—			6,464,518			6,464,518
Income (Loss) from Operations	$	67,148		$	(10,344,642	)	$	(10,277,494	)	$	17,780		$	(15,806,103	)	$	(15,788,323	)

As of December 31, 2018
As of March 31, 2019
Accounts receivable	$	252,870		$	59,753		$	312,623		$	80,995		$	78,351		$	159,346
Property and equipment, net		320,489			13,062,068			13,382,557			295,511			15,189,359			15,484,870

As of June 30, 2018
Accounts receivable	$	191,846		$	22,813		$	214,659		$	191,846		$	22,813		$	214,659
Property and equipment, net		465,360			12,354,809			12,820,169			465,360			12,354,809			12,820,169

Note ~~14.~~15. Subsequent Events

~~Purchase Order~~

~~On January 14, 2019,~~The Company is not aware of events and/or transactions occurring after the ~~Company executed a price quotation (the “Purchase Order”) pursuant~~balance sheet date and before the issue date of the financials statements that require adjustment to ~~which it purchased a semiconductor lithography system (the “System”), which will be used to pattern wafers for use~~or disclosure in the production of the Company’s RF filter products, from ASML US, LLC (“ASML”), for an undisclosed purchase price (the “Purchase Price”). Upon execution of a valid purchase order the Company will remit 50% of the Purchase Price, as required by the terms and conditions of the Purchase Order, and the Company expects to satisfy the remainder of the Purchase Price with either cash on hand and/or through debt financing. An additional 40% of the Purchase Price will be due upon shipment of the System, but no later than 30 days after the scheduled shipment, which is expected to occur in the fourth quarter of 2019. The final 10% of the Purchase Price will be due upon acceptance of the System, but no later than 30 days after acceptance or 90 days after shipment, whichever occurs first. Failure by the Company to timely make payments under the Purchase Order will cause interest to accrue on overdue amounts at a rate equal to 1.5% per month and entitle ASML to repossess the System. 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 subsidiary, Akoustis, Inc. each of which are Delaware corporations.

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”) filters, (ii) a projection 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 (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) or (iii) above.

The 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 ability to continue 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”) activities; our inability to achieve acceptance of our products in the market; general economic conditions, including upturns and downturns in the industry; our limited number of patents; failure to obtain, maintain, and enforce our intellectual property rights; 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 integrate our New York wafer fabrication facility and related operations into our business; 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.

These and other risks and uncertainties, which are described in more detail in our Annual Report on Form 10-K, filed with the SEC on August 29, 2018 (the “2018 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

Akoustis® is ~~a development-stage~~an emerging commercial company focused on developing, designing, and manufacturing innovative RF filter products for the wireless industry, including for products such as smartphones and tablets, cellular infrastructure equipment, WiFi Customer Premise Equipment (“CPE”) and military and defense communications 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. We have developed a new and proprietary microelectromechanical systems (“MEMS”)~~-based~~ based bulk acoustic wave (“BAW”) technology and unique manufacturing flow, called “XBAW”. Our XBAW^TMprocess incorporates optimized high purity piezoelectric materials for high power, high frequency and wide bandwidth applications. Filters are critical in selecting and rejecting signals, and their performance enables differentiation in the modules defining the RFFE.

We believe owning the core resonator technology and manufacturing our designs is the most direct and efficient means of delivering our solutions to the market. Furthermore, our technology is based upon bulk-mode resonance, which we believe is superior to surface-mode resonance for high-band applications that include 4G/LTE, emerging 5G, WiFi, and military applications. ~~Some~~Although some of our target customers utilize or make the RFFE module, they may lack access to critical high-band filter technology needed to compete in high-band applications and other traditional surface-mode solutions where higher power performance is required. We intend to design, manufacture, and market our RF filter products to mobile phone original equipment manufacturers (“OEMs”), military and defense OEMs, cellular infrastructure OEMs, and WiFi CPE OEM’s and 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 currently build ~~pre-production~~high performance RF filter circuits, using our first generation XBAW^TM wafer process, in our ~~122,000-square~~120,000-square foot wafer-manufacturing plant located in Canandaigua, New York, which we acquired in June ~~2017.~~2018. As of ~~December~~March 31, ~~2018, we have been awarded 21~~2019, our intellectual property (IP) portfolio included 22 patents, including ~~three~~a blocking ~~patents~~patent that we have licensed from Cornell ~~University and~~University. We also have an option to license two additional blocking patents from the University of California, Santa ~~Barbara and~~Barbara. Additionally, we have ~~36 additional~~37 patent applications active and pending. These patents cover our XBAW^TMRF filter technology from the substrate level through the system application layer. Where possible, we leverage both federal and state level R&D grants to support development and commercialization of our technology.

We are developing RF filters for 4G/LTE, emerging 5G, WiFi and military bands and the associated proprietary models and design kits required to design our RF filters. As we qualify our first RF filter products, we are engaging with target customers to evaluate our filter solutions. Our initial designs target high-band, sub 7 GHz 4G/LTE, ~~sub 6-GHz~~ emerging 5G, WiFi and ~~WiFi frequency~~military bands. Since Akoustis owns its core technology and controls access to its intellectual property, we expect to offer several ways to engage with potential customers. First, we intend to engage with multiple wireless markets, providing filters that we design and offer as standard catalog components. Second, we expect to deliver filters to customer-supplied specifications, which we will design and fabricate for a specific customer. Finally, we will offer our models and design kits for our customers to design their own ~~filter~~filters utilizing our proprietary technology.

We have earned minimal revenue from operations since inception, and we have funded our operations primarily with development contracts, RF filter prototype orders, government grants, MEMS foundry and engineering services, sales of our equity securities, and issuance of debt. We have incurred losses totaling approximately ~~$52.3~~$61.7 million from inception through ~~December~~March 31, ~~2018.~~2019. These losses are primarily the result of material and 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.

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, infrastructure and premise equipment 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, Radar and WiFi applications. In March and April of 2018, we announced our first two commercial products, the AKF-1252 and the ~~AKF-1938, which we are currently sampling with customers involved in the WiFi market and military market, respectively.~~AKF-1938. In May 2018 we announced a Non-Recurring Engineering (“NRE”) contract and purchase order for a 4G/LTE infrastructure customer and provided initial samples of two Band 25 filters to this customer in October 2018. In June 2018 we announced a 5.2 GHz BAW WiFi filter for the handset market, the AKF-1652. We added our first 5G cellular infrastructure customer for the Citizen’s Broadband Radio Service in August ~~2018.~~2018 and announced first samples to our 5G customer in March 2019. We announced a second 5G cellular infrastructure customer in October 2018, with initial samples expected by June 2019. In September 2018, we recorded our first XBAW^TM filter revenue from our military customer for pre-production units and received a follow-on order in addition to the original purchase order for production ~~units scheduled toship before March 31, 2019.~~units. In December 2018, we introduced the AKF-1256, a 5.6 GHz BAW filter for the WiFi market and shipped samples to select partners for evaluation and testing. We are currently shipping production units of the AKF-1938 to our military customer and have shipped pre-production units of our AKF-1252 product to multiple WiFi customers, including a new customer that signed a supply agreement with an initial order of more than 80,000 AK-1252 filters, which were delivered in the quarter ended March 31, 2019. As we receive customer evaluations for our growing portfolio, we will do further iterations on the designs and provide next generation samples for evaluation and characterization.

To succeed, we must convince mobile phone OEMs, RFFE module manufacturers, cellular infrastructure OEMs, WiFi CPE OEMs and military customers to use our XBAW^TM filter technology in their systems and modules. However, since there are 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.

In ~~June~~July 2018, we completed the qualification of our high purity piezoelectric materials process and our XBAW^TM manufacturing process to support an initial product family of 4G/LTE, emerging 5G mobile, WiFi and military filter solutions. Now that 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 1 GHz to 7 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, but 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.

As of ~~January 28,~~May 6, 2019, the Company had ~~$40.7~~$32.8 million of cash and cash equivalents to fund our 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. These funds are expected to be sufficient to fund our operations beyond the next twelve months from the date of filing of this Form 10-Q. 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, and our success in commercialization. We anticipate adding employees for R&D in both our New York and North Carolina facilities, as well as G&A functions, to support our efforts. We expect capital expenditures to be approximately ~~$12.0~~$6.0 million for the purchase of equipment and software during the next 12 months.

The amounts we actually spend 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 to 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.

Commercial development of 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.

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 2018 Annual Report.

Results of Operations

Three Months Ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~2018

Revenue

The Company recorded revenue of ~~$323,000~~$0.2 million during the three months ended ~~December~~March 31, ~~2018~~2019 as compared to ~~$445,000~~$0.3 million for the three months ended ~~December~~March 31, ~~2017.~~2018. Revenue recorded during the three months ended ~~December~~March 31, 2019 included $0.1 million of RF filter and amplifier sales, and $0.1 million of revenue for non-recurring engineering services provided at the NY Facility. The revenue for the three months ended March 31, 2018 ~~included $260,000~~consisted of $0.3 million of revenue for foundry services provided at the NY Facility, and $64,000 in RF filter and amplifier sales. The revenue for the three months ended December 31, 2017 included $292,000 of revenue for foundry services provided at the NY Facility, $5,000 in RF filter and amplifier sales, and $147,000 in grant revenue. Facility.

Cost of Revenue

The Company recorded cost of revenue of ~~$370,000~~$0.3 million in each of the three months ended ~~December~~March 31, 2019 and 2018, which ~~includes~~included direct labor, ~~material,~~direct materials and facility ~~costs primarily associated with the foundry services revenue, as compared to $330,000 in the three months ended December 31, 2017.~~costs.

Research and Development Expenses

R&D expenses were ~~$4.5~~$5.5 million for the three months ended ~~December~~March 31, ~~2018~~2019 and were ~~$1.0~~$2.5 million, or ~~30%~~82%, higher than the prior year amount for the same period of ~~$3.5~~$3.0 million. The period-over-period increase was primarily in the areas of R&D personnel, stock-based compensation, ~~depreciation,~~materials and ~~facility costs.~~depreciation. Personnel costs were ~~$1.7~~$1.9 million compared to ~~$1.1~~$1.4 million ~~in the comparative period~~ in the prior year period, an increase of ~~$610,000~~$0.6 million or ~~55%~~42%. The higher spend was due to additional R&D ~~personnel~~headcount at both the Huntersville, NC location and the NY Facility. Stock-based compensation of ~~$0.6~~$1.5 million for the three months ended ~~December~~March 31, ~~2018~~2019 was ~~$186,000,~~$0.8 million, or ~~22%~~115%, ~~lower~~higher than the three months ended ~~December~~March 31, ~~2017~~2018 mostly due to a change in the fair value of awards from prior periods. ~~Facility and material~~Material costs of ~~$1.2~~$0.8 million primarily associated with the NY Facility ~~include utilities of $378,000, facility costs of $401,000, and supplies, materials and parts costs of $454,000. In addition, depreciation costs~~ were $0.6 million ashigher than the comparative period due to increased R&D activity. Lastly, depreciation expense was $0.6 million compared to $0.2 million in ~~the comparative period ended December 31, 2017, which was an increase of $437,000, or 267%, attributed~~2018 primarily due to additional capital expenditures made during the year.

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 for the each of three months ended ~~December~~March 31, 2019 and 2018 were ~~$1.8 million versus $2.2 million for the comparative period in the prior year. The decrease of $0.4~~$2.4 million. Components within G&A expenses include a $0.3 million, or ~~18%~~39%, ~~was associated mainly with increases~~increase in personnel costs offset by decreases in professional fees, depreciation, relocation and recruiting expense, and stock-based compensation. Personnel costs of $0.7 million were higher by $154,000, or 29%, compared to the same period in the prior year due to the increase in the number of administrative personnel, while professional fees of $0.3 million, associated with legal, accounting and investor relations, were lower by $74,000, or 19%. Stock-based compensation for the three months ended December 31, 2018 was $0.5 million and lower by $125,000, or 19%, compared to the same period in the prior year as a result of additional headcount added throughout the ~~recording~~year. Offsetting the personnel increase were decreases in stock compensation of ~~the change in the fair value of stock grants. Additionally,~~$0.1 million, as well as professional fees and other G&A ~~costs for the three months ended December 31, 2018 included lower recruiting and relocation costs of $134,000 and lower depreciation costs of $60,000.~~expenses.

Other (Expense)/Income

Other expense for the three months ended ~~December~~March 31, ~~2018~~2019 was ~~$391,000~~$1.4 million, which included a gain on the contingent real estate liability of $0.9 million, interest income of $0.2 million and ~~included~~ rental income of ~~$69,000,~~$0.1 million, offset by ~~$744,000 in~~$1.0 million of interest expense related to the amortization of debt issuance costs and interest on the convertible notes and a ~~$54,000~~ loss of $1.6 million on the change in the fair value of the derivative liability related to our ~~contingent real estate liability, and~~convertible senior secured notes. Other income for the three months ended March 31, 2018 was $0.7 million, consisting of a ~~$338,000~~ gain of $0.6 million on the change in the fair value of our derivative ~~liability. Other income for the three months ended December 31, 2017 was $8,000~~liability and ~~included~~ rental income of ~~$87,000, offset by a $79,000 loss on change in fair value of our contingent real estate liability.~~$0.1 million.

Net Loss

The Company recorded a net loss of ~~$6.7~~$9.4 million for the three months ended ~~December~~March 31, ~~2018,~~2019, compared to a net loss of ~~$5.5~~$4.8 million for the three months ended ~~December~~March 31, ~~2017.~~2018. The period-over-period incremental loss of ~~$1,205,000,~~$4.6 million, or ~~22%~~96%, was primarily driven by a loss on the change in fair value of the derivative liability of $1.6 million, increased net interest expense of $0.8 million, higher personnel costs of ~~$764,000, decreased other income (net) of $399,000,~~$0.8 million, R&D materials $0.6 million and increased ~~depreciation of $377,000, offset by decreased~~ stock compensation ~~costs~~ of ~~$311,000.~~$0.7 million.

~~Six~~Nine Months Ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~2018

Revenue

The Company recorded revenue of ~~$636,000~~$0.9 million during the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 as compared to ~~$745,000~~$1.0 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2018. Revenue recorded during the ~~six~~nine months ended ~~December~~March 31, 2019 included $0.4 million of revenue for non-recurring engineering services, $0.2 million of foundry services provided at the NY Facility, $0.2 million in RF filter and amplifier sales, and $0.1 million in grant revenue. The revenue for the nine months ended March 31, 2018 included ~~$408,000~~$0.8 million of revenue for foundry services provided at the NY Facility, ~~$119,000 in RF filter~~ and amplifier sales, and $109,000 in grant revenue. The revenue for the six months ended December 31, 2017 included $590,000 of revenue for foundry services provided at the NY Facility, $9,000 in RF filter and amplifier sales, and $147,000$0.1 million in grant revenue.

Cost of Revenue

The Company recorded cost of revenue of ~~$514,000 for~~$0.8 million in each of the ~~six~~nine months ended ~~December~~March 31, 2019 and 2018, which included direct labor, direct materials and facility ~~costs associated with the foundry services revenue. The Company recorded $523,000 in cost of revenue for the comparative six-month period of 2017.~~costs.

Research and Development Expenses

R&D expenses were ~~$8.9~~$14.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and were ~~$2.4~~$5.0 million, or ~~38%~~52%, higher than the prior year amount for the same period of ~~$6.5~~$9.5 million. The period-over-period increase was primarily in the areas of R&D personnel, stock-based compensation, and depreciation. Personnel costs were ~~$3.4~~$5.5 million compared to ~~$2.4~~$3.7 million in the comparative period in the prior year, an increase of ~~$1,035,000~~$1.8 million or ~~44%~~47%. The higher spend was due to additional R&D personnel at both the Huntersville, NC location and the NY Facility. Stock-based compensation of ~~$1.6~~$3.0 million for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 was ~~$447,000,~~$1.2 million, or ~~40%~~69%, higher than the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2018 due to change in the fair value of awards from prior periods. In addition, depreciation costs were ~~$1.2~~$1.7 million as compared to ~~$0.3~~$0.5 million in the comparative period ended ~~December~~March 31, ~~2017~~2018, which was an increase of ~~$849,000,~~$1.2 million, or ~~264%~~229%, attributed primarily to additional capital expenditures made during the year.

General and Administrative Expense

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 for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 were ~~$4.3~~$6.7 million versus ~~$4.0~~$6.5 million for the comparative period in the prior year. The increase of ~~$228,000,~~$0.2 million, or 6%3%, was associated mainly with increases in personnel costs and stock-based compensation, offset by decreases in professional fees, depreciation, and ~~relocation~~other general and ~~recruiting expense.~~administrative expenses. Personnel costs of ~~$1.5~~$2.5 million were higher by ~~$585,000,~~$0.6 million, or ~~63%~~29%, compared to the same period in the prior year due to the increase in the number of administrative personnel. Stock-based compensation for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 was ~~$1.7~~$2.5 million, ~~and higher by $743,000,~~an increase of $0.7 million, or ~~77%~~36%, compared to the same period in the prior year as a result of the recording of the change in the fair value of stock grants issued. Professional fees of ~~$0.6~~$1.0 million, associated with legal, accounting and investor relations, ~~were lower~~decreased by ~~$370,000,~~$0.4 million, or ~~40%~~30%. ~~Additionally, G&A costs for the six months ended December 31, 2018 included $288,000 of lower recruiting~~In addition, depreciation and ~~relocation costs, and $132,000 of lower depreciation costs.~~other general expenses decreased by $0.5 million, or 67%.

Liquidity and Capital Resources

Financing Activities

Since inception, the Company has recorded approximately $1.1 million of revenue from contract research and government grants, and ~~$1.5~~$1.7 million of foundry services revenue. Our operations thus far have been funded primarily with contract research and government grants, foundry services and sales of our equity ~~securities,~~ and ~~debt.~~debt securities.

The Company had ~~$42.1~~$34.6 million of cash on hand as of ~~December~~March 31, ~~2018,~~2019, which reflects an increase of ~~$27.3~~$19.8 million compared to $14.8 million as of June 30, 2018. The ~~$27.3~~$19.8 million increase is primarily due to ~~$8.5~~$13.4 million in net cash used in operating activities and ~~$1.8~~$4.5 million in capital expenditures for the ~~six~~nine months ended ~~December~~March 31, ~~2018,~~2019, offset by the receipt of ~~$37.6~~$37.7 million in net proceeds from sales of our common stock and issuance of convertible notes. These funds are expected to be sufficient to fund our operations beyond the next twelve months from the date of filing of this Form 10-Q.

Balance Sheet and Working Capital

~~December~~March 31, ~~2018~~2019 compared to June 30, 2018

As of ~~December~~March 31, ~~2018,~~2019, the Company had current assets of ~~$43.4~~$35.8 million made up primarily of cash on hand of ~~$42.1~~$34.6 million. As of June 30, 2018, current assets were $15.9 million comprised primarily of cash on hand of $14.8 million. The $27.3 million increase in cash was due to $8.6 million of cash expended for operations and investment in machinery and equipment of $1.8 million, offset by the receipt of $37.6 million in net proceeds from sales of our common stock and issuance of convertible notes.

Property, Plant and Equipment was ~~$13.4~~$15.5 million as of ~~December~~March 31, ~~2018~~2019 as compared to a balance of $12.8 million as of June 30, 2018. The approximate ~~$0.6~~$2.7 million increase is primarily due to the purchase of R&D and manufacturing equipment ~~and leasehold improvements~~ of ~~$1.8~~$4.4 million, offset by depreciation of ~~$1.2~~$1.8 million.

Total assets as of ~~December~~March 31, ~~2018~~2019 and June 30, 2018 were ~~$57.6~~$52.2 million and $29.3 million, respectively.

Current liabilities as of ~~December~~March 31, ~~2018~~2019 and June 30, 2018 were ~~$2.6~~$2.8 million and $2.6 million, respectively.

Long-term liabilities totaled ~~$18.4~~$19.7 million as of ~~December~~March 31, ~~2018,~~2019, compared to $12.8 million ~~for the prior year end.~~as of June 30, 2018. The increase of ~~$5.6~~$6.8 million was mainly due to the increase in convertible notes, net of debt discount and issuance costs of ~~$5.5~~$7.6 million offset by a decrease in the real estate contingent liability of $0.8 million.

Stockholders’ equity was ~~$36.6~~$29.7 million as of ~~December~~March 31, ~~2018,~~2019, compared to ~~$13.9~~$13.8 million as of June 30, 2018, an increase of ~~$22.7 million.~~$15.9 million, or 114%. Additional paid-in-capital (“APIC”) was ~~$88.8~~$91.4 million as of ~~December~~March 31, ~~2018~~2019 and increased by ~~$36.7~~$39.3 million from June 30, 2018. The increase was due to an increase of $28.7 million in common stock issued for cash, ~~$4.1~~$6.7 million of APIC recorded due to the vesting of restricted stock agreements granted to employees and contractors in lieu of cash compensation and common stock issued in payment of note interest and for the exercise of warrants, and $3.9 million from the change in the intrinsic value of the beneficial conversion feature of the $15.0 million principal amount of convertible notes issued in May 2018. The ~~$22.7~~$15.9 million increase in stockholders’ equity consisted of the ~~$36.7~~$39.3 million increase in APIC reduced by the ~~$14.1~~$23.5 million net loss recorded for the ~~six~~nine months ended ~~December~~March 31, ~~2018.~~2019.

Cash Flow Analysis

Operating activities used cash of ~~$8.5~~$13.4 million during the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 and ~~$6.7~~$11.1 million ~~for~~during the ~~2017~~2018 comparative period. The ~~$1.8~~$2.3 million period-over-period increase in cash used was attributable to higher operating expenses associated with the ramp up of development and commercialization activities (primarily R&D personnel and material costs)~~, higher spend on G&A costs for support personnel and professional fees and increase in depreciation expense.~~.

Investing activities used cash of ~~$1.8~~$4.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 compared to ~~$4.5~~$5.3 million for the comparative period ended ~~December~~March 31, ~~2017.~~2018. The ~~$2.7~~$0.8 million period-over-period decrease was primarily due to decreased spend on R&D equipment and leasehold improvements.

Financing activities provided cash of ~~$37.6~~$37.7 million for the ~~six~~nine months ended ~~December~~March 31, ~~2018~~2019 versus $13.3 million for the ~~2017~~2018 comparative period. Proceeds from the issuance of common stock were $28.7 million in the ~~six~~nine month period ended ~~December~~March 31, ~~2018~~2019 versus ~~$13.3~~$13.2 million in the ~~2017~~2018 comparative period. Additionally, the company received $8.9 million in proceeds from the sale of convertible notes in the ~~six~~nine months ended ~~December~~March 31, ~~2018.~~2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under 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 recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls 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 accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and our Interim Chief Financial Officer (our principal executive officer and principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~March 31, ~~2018.~~2019. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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.

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.

ITEM 1A. RISK ~~FACTORS.~~ FACTORS.

In addition to 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, 2018. 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. Other than as set forth below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our 2018 Annual Report.

Problems in scaling our manufacturing operations could have a material adverse effect on our business.

Future customer demand may require us to significantly increase our manufacturing capacity. There are substantial technical challenges to increasing manufacturing capacity, including equipment acquisition lead times, materials procurement, scaling our manufacturing process, manufacturing site expansion, and the need to significantly increase production yields while maintaining or improving quality control and assurance. Developing commercial-scale manufacturing facilities will require the investment of substantial additional funds and the hiring and retention of additional management, quality assurance, quality control and technical personnel who have the necessary manufacturing experience. The scaling of manufacturing capacity is subject to numerous risks and uncertainties and may lead to variability in product quality or reliability, increased construction timelines, as well as resources required to acquire, install and maintain manufacturing equipment, among others, all of which can lead to unexpected delays in manufacturing output. Additionally, the production of our products must occur in a highly controlled and clean environment to minimize particles and other yield- and quality-limiting contaminants. Weaknesses in process control or minute impurities in materials may cause a substantial percentage of defective products. We may not be able to maintain stringent quality controls and contamination problems could arise. Material defects in our products could result in loss or delay of revenues, delayed market acceptance, damage to our reputation, lost customers, legal claims, increased insurance costs or increased service and warranty costs. If we are unable to successfully scale up our manufacturing operations to meet customer demand, our business growth could be materially adversely affected.

2628

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Repurchases

~~None.~~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. During the third quarter of fiscal 2019, the Company repurchased an aggregate 21,125 shares of restricted stock in connection with the resignation of an employee pursuant to the terms of such employee’s award agreement, 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)

January 2019 — $ .001 — 225,281
February 2019 — $ .001 — 219,203
March 2019 21,125 $ .001 — 195,578
Total 21,125 — — 195,578
(1) As of March 31, 2019, approximately 6,078 shares and 189,500 shares remain subject to repurchase options under the 2014 Plan and the 2015 Plan, respectively. The repurchase options expire as the restricted shares vest and generally extend through August 2020.

Unregistered Sales of Equity Securities

Other than as 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The exhibits in the Exhibit Index below are filed or furnished, as applicable, as part of this report.

EXHIBIT INDEX

Exhibit
Number Description

3.1 Articles of Conversion of the Company, as filed with the Nevada Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.2 Certificate of Conversion of the Company, as filed with the Delaware Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.3 Certificate of Incorporation, as filed with the Delaware Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.4 Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

~~4.1~~10.1*† ~~Indenture,~~Price Quotation, dated ~~as of October 23, 2018,~~January 14, 2019, by and between ~~Akoustis Technologies, Inc.~~the Company and ~~The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)~~ASML US, LLC

~~4.2~~
First Supplemental Indenture, dated as of October 23, 2018, by and between Akoustis Technologies, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)
~~4.3~~
~~Form of 6.5% Convertible Senior Note due November 30, 2023 (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)~~
31.1* Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer

31.2* Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer

32.1* Section 1350 Certification of Principal Executive Officer

32.2* Section 1350 Certification of Principal Financial Officer

101* Interactive Data Files of Financial Statements and Notes

101.INS* Instant Document

101.SCH* XBRL Taxonomy Schema Document

101.CAL* XBRL Taxonomy Calculation Linkbase Document

101.DEF* XBRL Taxonomy Definition Linkbase Document

101.LAB* XBRL Taxonomy Label Linkbase Document

101.PRE* XBRL Taxonomy Presentation Linkbase Document

* Filed herewith

† ~~Management contract or compensatory arrangement~~Confidential portions of this exhibit have been omitted

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: ~~February 4,~~May 10, 2019 Akoustis Technologies, Inc.

By: /s/ Kenneth E. Boller
Kenneth E. Boller
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

29

	December 31,			June 30,
	2018			2018
	(Unaudited)
Assets

Assets:
Cash and cash equivalents	$	42,083,681		$	14,816,717
Accounts receivable		312,623			214,659
Inventory		106,847			57,556
Prepaid expenses		337,233			305,942
Other current assets		582,277			484,173
Total current assets		43,422,661			15,879,047

Property and equipment, net		13,382,557			12,820,169

Intangibles, net		320,518			264,295

Assets held for sale, net		300,000			333,250

Other assets		136,156			11,155
Total Assets	$	57,561,892		$	29,307,916

Liabilities and Stockholders' Equity

Current Liabilities:
Accounts payable and accrued expenses	$	2,543,745		$	2,593,432
Deferred revenue		41,558			52,938
Total current liabilities		2,585,303			2,646,370

Long-term Liabilities:
Contingent real estate liability		1,330,411			1,229,966
Convertible notes payable, net		16,965,200			11,464,632
Other long-term liabilities		129,586			117,086
Total long-term liabilities		18,425,197			12,811,684

Total Liabilities		21,010,500			15,458,054

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; 29,910,453 and 22,203,437 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively		29,910			22,203
Additional paid in capital		88,800,774			52,074,343
Accumulated deficit		(52,279,292	)		(38,246,684	)
Total Stockholders' Equity		36,551,392			13,849,862
Total Liabilities and Stockholders' Equity	$	57,561,892		$	29,307,916

	For the Three Months Ended December 31, 2018			For the Three Months Ended December 31, 2017			For the Six Months Ended December 31, 2018			For the Six Months Ended December 31, 2017

Revenue
Revenue with customers	$	323,276		$	297,321		$	526,825		$	598,261
Grant revenue		—			147,232			109,472			147,232
Total revenue		323,276			444,553			636,297			745,493

Cost of revenue		369,946			329,836			513,790			523,065

Gross profit		(46,670	)		114,717			122,507			222,428

Operating expenses
Research and development		4,522,247			3,473,031			8,928,429			6,477,396
General and administrative expenses		1,785,758			2,189,904			4,245,298			4,022,526
Total operating expenses		6,308,005			5,662,935			13,173,727			10,499,922

Loss from operations		(6,354,675	)		(5,548,218	)		(13,051,220	)		(10,277,494	)

Other (expense) income
Interest (expense) income		(743,799	)		263			(1,225,401	)		997
Rental income		68,670			86,844			137,341			172,188
Change in fair value of contingent real estate liability		(53,521	)		(79,305	)		(100,445	)		(79,305	)
Change in fair value of derivative liabilities		338,000			—			186,701			—
Total other (expense) income		(390,650	)		7,802			(1,001,804	)		93,880
Net loss	$	(6,745,325	)	$	(5,540,416	)	$	(14,053,024	)	$	(10,183,614	)

Net loss per common share - basic and diluted	$	(0.24	)	$	(0.27	)	$	(0.56	)	$	(0.52	)

Weighted average common shares outstanding - basic and diluted		27,853,225			20,167,681			25,045,913			19,667,770

	For the Six Months Ended			For the Six Months Ended
	December 31, 2018			December 31, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(14,053,024	)	$	(10,183,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,187,319			478,495
Share-based compensation		3,266,679			2,076,829
Amortization of debt discount		770,835			—
Change in fair value of derivative liabilities		(186,701	)		—
Change in fair value of contingent real estate liability		100,445			79,305
Changes in operating assets and liabilities:
Accounts receivable		(97,964	)		(298,797	)
Inventory		(49,291	)		113,497
Prepaid expenses		(31,291	)		(23,850	)
Other current asset		(60,552	)		259
Other assets		(125,001	)		(22,146	)
Accounts payable and accrued expenses		737,246			982,729
Change in other long-term liabilities		12,500			—
Deferred revenue		(28,516	)		62,947
Net Cash Used In Operating Activities		(8,557,316	)		(6,734,346	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for machinery and equipment		(1,749,249	)		(4,471,121	)
Cash received from sale of assets held for sale		33,250			—
Cash paid for intangibles		(56,681	)		(33,250	)
Net Cash Used In Investing Activities		(1,772,680	)		(4,504,371	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		28,659,168			13,258,063
Proceeds from exercise of warrants		70,520			47,665
Proceeds received from convertible notes, net		8,867,272			—
Net Cash Provided By Financing Activities		37,596,960			13,305,728

Net Increase (Decrease) in Cash		27,266,964			2,067,011

Cash - Beginning of Period		14,816,717			9,631,520

Cash - End of Period	$	42,083,681		$	11,698,531

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes	$	—		$	—
Interest	$	—		$	199

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Accrued interest paid in common shares	$	533,539		$	—
ASC 606 transition adjustment		20,416			—
Warrants issued for stock issuance costs		—			645,757
Convertible Notes – Beneficial Conversion Feature		3,950,839			—
Accrued capital expenditures		—			428,691

	Contract assets
Balance, June 30, 2018	$	6,612
YTD revenue recognition in excess of billings		25,348
Balance, December 31, 2018	$	31,960

	December 31, 2018		December 31, 2017
Convertible Notes		4,960,800		—
Options		2,087,064		1,166,859
Warrants		728,493		756,809
Total		7,776,357		1,923,668

	Six Months			Six Months		Three Months			Three Months
	12/31/2018			12/31/2017		12/31/2018			12/31/2017
Vendor 1		10	%		—		11	%		—
Vendor 2		—			—		10	%		—

	Three Months Ended December 31,
	2018		2017
Share based compensation expense	$	1,168,367	$	1,478,951

	Six Months Ended December 31,
	2018		2017
Share based compensation expense	$	3,266,679	$	2,076,831

	As of December 31, 2018
	Unrecognized stock- based compensation		Weighted- average years to be recognized
Options	$	3,531,756		2.98
Restricted stock awards/units	$	4,992,592		1.59
Performance based units	$	15,693		0.17

	Maximum Penalty
Year 2, ending March 23, 2019	$	3,973,333
Year 3, ending March 23, 2020	$	1,986,667

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)
January 2019		—	$	.001		—		225,281
February 2019		—	$	.001		—		219,203
March 2019		21,125	$	.001		—		195,578
Total		21,125		—		—		195,578


3.1		Articles of Conversion of the Company, as filed with the Nevada Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.2		Certificate of Conversion of the Company, as filed with the Delaware Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.3		Certificate of Incorporation, as filed with the Delaware Secretary of State on December 15, 2016 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

3.4		Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2016)

~~4.1~~10.1*†		~~Indenture,~~Price Quotation, dated ~~as of October 23, 2018,~~January 14, 2019, by and between ~~Akoustis Technologies, Inc.~~the Company and ~~The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)~~ASML US, LLC

~~4.2~~		First Supplemental Indenture, dated as of October 23, 2018, by and between Akoustis Technologies, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)

~~4.3~~		~~Form of 6.5% Convertible Senior Note due November 30, 2023 (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018)~~

31.1*		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer

31.2*		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer

32.1*		Section 1350 Certification of Principal Executive Officer

32.2*		Section 1350 Certification of Principal Financial Officer

101*		Interactive Data Files of Financial Statements and Notes

101.INS*		Instant Document

101.SCH*		XBRL Taxonomy Schema Document

101.CAL*		XBRL Taxonomy Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Definition Linkbase Document

101.LAB*		XBRL Taxonomy Label Linkbase Document

101.PRE*		XBRL Taxonomy Presentation Linkbase Document

Dated: ~~February 4,~~May 10, 2019	Akoustis Technologies, Inc.

	By:	/s/ Kenneth E. Boller
		Kenneth E. Boller
		Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)