UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from __________ to __________
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(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
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As of April 26, 2022, there were
AKOUSTIS TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Akoustis Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| March 31, | June 30, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangibles, net | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contingent consideration | — | |||||||
| Deferred revenue | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Contingent consideration | ||||||||
| Operating lease liability | ||||||||
| Deferred tax liability | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Equity | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Akoustis Technologies, Inc. Equity | $ | $ | ||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
1
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | For the Nine Months Ended March 31, 2022 | For the Nine Months Ended March 31, 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Revenue with customers | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ||||||||||||||||
| Interest (expense) income | ( | ) | ( | ) | ||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Total other (expense) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income Taxes | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss (income) attributable to noncontrolling interest | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
2
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In thousands)
(Unaudited)
| For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
| Additional | Total Akoustis | |||||||||||||||||||||||||||
| Common Stock | Paid In | Accumulated | Technologies, Inc. | Noncontrolling | Total | |||||||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| Noncontrolling interest acquired | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
| Additional | Total Akoustis | |||||||||||||||||||||||||||
| Common Stock | Paid In | Accumulated | Technologies, Inc. | Noncontrolling | Total | |||||||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||||||||||
| Common stock issued in note conversion | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| Common stock issued in payment of note interest | ||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In thousands)
(Unaudited)
| For the Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
| Additional | Total Akoustis | |||||||||||||||||||||||||||
| Common Stock | Paid In | Accumulated | Technologies, Inc. | Noncontrolling | Total | |||||||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| ESPP purchase | ||||||||||||||||||||||||||||
| Common stock issued in acquisition | ||||||||||||||||||||||||||||
| Noncontrolling interest acquired | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| For the Nine Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
| Additional | Total Akoustis | |||||||||||||||||||||||||||
| Common Stock | Paid In | Accumulated | Technologies, Inc. | Noncontrolling | Total | |||||||||||||||||||||||
| Shares | Par Value | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||||||||||
| Common stock issued in note conversion | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| ESPP purchase | ||||||||||||||||||||||||||||
| Common stock issued in payment of note interest | ||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(Unaudited)
| Nine Months Ended March 31, 2022 | Nine Months Ended March 31, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of operating lease right of use asset | ||||||||
| Non cash interest payments | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Change in fair value of contingent consideration | ||||||||
| Gain on disposal of fixed assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Other long term liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for machinery and equipment | ( | ) | ( | ) | ||||
| Acquisition of business, net of cash acquired | ( | ) | ||||||
| Cash received from sale of fixed assets | ||||||||
| Cash paid for intangibles | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from exercise of employee stock options | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from employee stock purchase plan | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | ( | ) | ||||||
| Cash, Cash Equivalents and Restricted Cash - Beginning of Period | ||||||||
| Cash, Cash Equivalents and Restricted Cash - End of Period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Interest | ||||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued in payment of interest | ( | ) | ||||||
| Fixed assets included in accounts payable and accrued expenses | ( | ) | ||||||
| Stock issuance costs included in accounts payable and accrued expenses | — | ( | ) | |||||
| Acquisition of Business | ||||||||
| Tangible assets, excluding cash and cash equivalents | ||||||||
| Intangibles | ||||||||
| Goodwill | ||||||||
| Deferred tax liability | ( | ) | ||||||
| Contingent consideration | ( | ) | ||||||
| Liabilities assumed | ( | ) | ||||||
| Issuance of common stock for acquisition | ( | ) | ||||||
| Noncontrolling interest | ( | ) | ||||||
See accompanying notes to the condensed consolidated financial statements
5
AKOUSTIS TECHNOLOGIES, INC.
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
Note 1. Organization
Akoustis Technologies, Inc. (the “Company”)
was incorporated on April 10, 2013, and effective December 15, 2016, the Company changed its state of incorporation to the State of Delaware.
Through its wholly-owned 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, Wi-Fi Customer Premise Equipment
(“CPE”), and military and defense communication applications. Located between the device’s antenna and its digital
backend, the RF front-end (“RFFE”) is the circuitry that performs the analog signal processing and contains components such
as amplifiers, filters and switches. To construct the resonator devices that are the building blocks for its RF filters, the Company
has developed a family of novel, high purity acoustic piezoelectric materials as well as a unique microelectromechanical system (“MEMS”)
wafer process, collectively referred to as XBAWTM technology. The Company leverages its integrated device manufacturing (“IDM”)
business model to develop and sell high performance RF filters using its XBAWTM technology. Filters are critical in selecting
and rejecting signals, and their performance enables differentiation in the modules defining the RFFE. In October 2021, the Company acquired
a
Note 2. Liquidity
As of March 31, 2022, the Company had cash and
cash equivalents of $
The Company expects cash and cash equivalents to be sufficient to fund its operations beyond the 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. The Company has no commitments or arrangements to obtain any additional funds, 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 materially adversely affected and it may not be able to continue operations 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 for annual financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. The Company has evaluated subsequent events through the filing of this Form 10-Q. Operating results for the quarter ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending June 30, 2022 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 30, 2021 (the “2021 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. All significant intercompany accounts and transactions have been eliminated in consolidation. For RFMi, a consolidated entity in which we had 51% of ownership as of March 31, 2022, the Company records net loss (income) attributable to noncontrolling interest on the condensed consolidated statements of operations equal to the percentage of the ownership interest retained in such entity by the respective noncontrolling parties.
6
Significant Accounting Policies and Estimates
The Company’s significant accounting policies are disclosed in Note. 3-Summary of Significant Accounting Policies in the 2021 Annual Report. Since the date of the 2021 Annual Report, there have been no material changes to the Company’s significant accounting policies. The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes thereto. The policies, estimates and assumptions include valuing equity securities, deferred taxes and related valuation allowances, contingent consideration, goodwill, intangible assets, initial fair value of the non-controlling interest, revenue recognition, and the fair values of long-lived assets. Actual results could differ from the estimates.
Business Combinations - Business combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any noncontrolling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Transaction costs are expensed in a business combination.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated losses to be incurred in the collection of accounts receivable.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.
Note 4. Revenue Recognition from Contracts with Customers
Disaggregation of Revenue
The Company’s primary revenue streams include foundry fabrication services and product sales.
Foundry Fabrication Services
Foundry fabrication services revenue includes Non-Recurring Engineering (“NRE”) and microelectromechanical systems (“MEMS”) foundry services. Under these contracts, products are delivered to the customer at the completion of the service which represents satisfaction of the performance obligation as well as transfer of title. Depending on language with regards to enforceable right to payment for performance completed to date, related revenue will either be recognized over time or at a 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 March 31, 2022 (in thousands):
| Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| NRE | $ | | $ | |||||||||
| Filters/Amps | ||||||||||||
| Total | $ | $ | $ | |||||||||
7
The following table summarizes the revenues of the Company’s reportable segments for the nine months ended March 31, 2022 (in thousands):
| Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| NRE | $ | $ | ||||||||||
| Filters/Amps | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table summarizes the revenues of the Company’s reportable segments for the three months ended March 31, 2021 (in thousands):
| Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| NRE - RF Filters | $ | | $ | |||||||||
| Filters/Amps | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table summarizes the revenues of the Company’s reportable segments for the nine months ended March 31, 2021 (in thousands):
| Foundry Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| NRE - RF Filters | $ | $ | $ | |||||||||
| Filters/Amps | ||||||||||||
| Total | $ | $ | $ | |||||||||
Performance Obligations
The Company has determined that contracts for product sales revenue and foundry fabrication services revenue involve one performance obligation, which is delivery of the final product.
Contract Balances
The following table summarizes the changes in the opening and closing balances of the Company’s contract asset and liability for the first nine months of fiscal years 2022 and 2021 (in thousands):
| Contract Assets | Contract Liability | |||||||
| Balance, June 30, 2021 | $ | $ | ||||||
| Closing, March 31, 2022 | ||||||||
| Increase/(Decrease) | $ | $ | ||||||
| Balance, June 30, 2020 | $ | $ | ||||||
| Closing, March 31, 2021 | ||||||||
| Increase/(Decrease) | $ | ( | ) | $ | ||||
8
The Company records a receivable when the title
for goods has transferred. Generally, all sales are contract sales (with either an underlying contract or purchase order), resulting
in all receivables being contract receivables. When invoicing occurs prior to revenue recognition a contract liability is recorded (as
deferred revenue on the Condensed Consolidated Balance Sheets). The amount of revenue recognized in the nine months ended March 31, 2022
that was included in the opening contract liability balance was $
Contract assets are recorded when revenue recognized
exceeds the amount invoiced. The difference between the opening and closing balances of the Company’s contract assets and contract
liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The
amount of contract assets invoiced in the nine months ended March 31, 2022 that was included in the opening contract asset balance was
$
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 $
Note 5: Inventory
Inventory is stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) valuation method.
Inventory consisted of the following as of March 31, 2022 and June 30, 2021 (in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
| Raw Materials | $ | $ | ||||||
| Work in Process | ||||||||
| Finished Goods | ||||||||
| Total Inventory | $ | $ | ||||||
Note 6. Property and Equipment, net
Property and equipment, net consisted of the following as of March 31, 2022 and June 30, 2021 (in thousands):
| Estimated Useful Life | March 31, 2022 | June 30, 2021 | ||||||||
| Land | n/a | $ | $ | |||||||
| Building | ||||||||||
| Equipment | ||||||||||
| Leasehold Improvements | * | |||||||||
| Software | ||||||||||
| Furniture & Fixtures | ||||||||||
| Computer Equipment | ||||||||||
| Total | ||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
| (*) | Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. |
The Company recorded depreciation expense of $
As of March 31, 2022, equipment with a net book
value totaling $
9
Note 7. Business Acquisition
On October 15, 2021, the Company acquired a majority
ownership position in RFM Integrated Device, Inc. (“RFMi”), a fabless supplier of acoustic wave RF resonators and filters,
to expand product offerings and provide access to new markets. The Company acquired a
Additionally, earn-out payments payable in cash
and/or shares of common stock of the Company may be payable to TST based on the achievement of sales targets for RFMi products in each
of calendar year 2022 and 2023, with potential payouts in the range of $
The purchase price was preliminarily allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
| Consideration: | ||||
| Cash paid | $ | |||
| Common stock | ||||
| Fair value of contingent consideration | ||||
| Total consideration | $ | |||
| Cash | $ | |||
| Other tangible assets | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Liabilities assumed | ( | ) | ||
| Deferred tax liability | $ | ( | ) | |
| Total assets acquired | $ | |||
| Noncontrolling interest | ( | ) | ||
| Net assets acquired | $ | |||
The Company will continue to evaluate the fair market value and other estimates of certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date) as provided for in ASC 805-10.
The provisional values of the intangible assets
acquired included trademarks of $
The fair value of the trademarks acquired was
determined based on an income approach using the “relief-from-royalty” method which estimated the value of the intangible
asset by discounting the future cash flows of the asset to present value. Key inputs include a royalty rate of
The fair value of the developed technology acquired
was determined based on an income approach using the “relief-from-royalty” method which estimated the value of the intangible
asset by discounting the future cash flows of the asset to present value. Key inputs include a royalty rate of
10
The fair value of the customer relationships acquired
was determined based on an income approach using the “multi-period excess earnings” method in which the value of the intangible
asset is determined by discounting the future cash flows of the asset to present value. Key inputs include a discount rate of
The fair value of the noncontrolling interest
was determined by applying a lack of control discount of
The goodwill resulting from the acquisition of
RFMi, which has been recorded in the RF Product segment, is attributed to synergies and other benefits that are expected to be generated
from this transaction and is not deductible for income tax purposes. During the three and nine months ended March 31, 2022, the Company
recorded acquisition costs associated with the acquisition of RFMi totaling $
Pro Forma Results
The following unaudited pro forma financial information summarizes the revenues for the three and nine months ended March 31, 2022 and 2021, as if the acquisition had been completed as of July 1, 2020 (in thousands). The unaudited pro forma information does not purport to be indicative of the results that would have been obtained if the acquisitions had actually occurred at the beginning of the year prior to acquisition, nor of the results that may be reported in the future. Pro-forma earnings were not materially different from reported results for the periods presented and thus have not been included.
| Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
|
Unaudited Reported |
Unaudited Proforma |
Unaudited Proforma |
Unaudited Proforma |
|||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
Note 8: Goodwill and Intangible Assets
Intangible assets consisted of the following as of March 31, 2022 (in thousands):
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Useful Life in Years | |||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||
| Trademarks | $ | $ | ( | ) | $ | |||||||||||
| Developed Technology | $ | $ | ( | ) | $ | |||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | |||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
Intangible assets consisted of the following as of June 30, 2021 (in thousands):
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Useful Life in Years | |||||||||||||
| Developed Technology | $ | $ | ( | ) | $ | |||||||||||
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Amortization expense totaled $
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| Thereafter | $ | |||
| Total | $ |
Note 9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following at March 31, 2022 and June 30, 2021 (in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries and benefits | ||||||||
| Accrued professional fees | ||||||||
| Accrued utilities | ||||||||
| Accrued goods received not invoiced | ||||||||
| Other accrued expenses | ||||||||
| Totals | $ | $ | ||||||
Note 10. Concentrations
Vendors
Vendor concentration as a percentage of purchases for the three months ended March 31, 2022 and 2021 are as follows:
| Three Months 03/31/2022 | Three Months 03/31/2021 | |||||||
| Vendor 1 | % | |||||||
| Vendor 2 | % | |||||||
Vendor concentration as a percentage of purchases for the nine months ended March 31, 2022 and 2021 are as follows:
| Three Months 03/31/2022 | Three Months 03/31/2021 | |||||||
| Vendor 1 | % | |||||||
Customers
Customer concentration as a percentage of revenue for the three months ended March 31, 2022 and 2021 are as follows:
| Three Months 03/31/2022 | Three Months 03/31/2021 | |||||||
| Customer 1 | % | |||||||
| Customer 2 | % | % | ||||||
Customer concentration as a percentage of revenue for the nine months ended March 31, 2022 and 2021 are as follows:
| Nine Months 03/31/2022 | Nine Months 03/31/2021 | |||||||
| Customer 1 | % | |||||||
| Customer 2 | % | % | ||||||
| Customer 3 | % | |||||||
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Note 11. Equity
Equity Offering Program
Pursuant to an ATM Equity OfferingSM Sales
Agreement with BofA Securities, Inc. and Piper Sandler & Co. (the “Sales Agreement”), the Company was able to sell from
time-to-time shares of its common stock having an aggregate offering price of up to $
The following table summarizes sales through the Equity Offering Program during the nine months ended March 31, 2022:
| Three months ended | Avg price per share | Number of Shares | Gross Proceeds (in millions) | Offering Expenses (in millions) | Net Proceeds (in millions) | |||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||
Equity Incentive Plans
During the nine months ended March 31, 2022,
the Company granted employees options to purchase an aggregate of approximately
| Nine Months Ended March 31, 2022 | ||||
| Exercise price | $ | | ||
| Expected term (years) | ||||
| Volatility | % | |||
| Risk-free interest rate | % | |||
| Dividend yield | % | |||
| Weighted Average Grant Date Fair Value of Options granted during the period | $ | |||
During the nine months ended March 31, 2022 the
Company awarded certain employees and directors grants of an aggregate of approximately
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Compensation expense related to our stock-based awards described above was as follows (in thousands):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and Development | $ | $ | $ | $ | ||||||||||||
| General and Administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Unrecognized stock-based compensation expense and weighted-average years to be recognized are as follows (in thousands):
| As of March 31, 2022 | ||||||||
| Unrecognized stock-based compensation | Weighted- average years to be recognized | |||||||
| Options | $ | |||||||
| Restricted stock units | $ | |||||||
Note 12. Commitments and Contingencies
Leases
The Company leases office space and office equipment
in Huntersville, NC as well as equipment in Canandaigua, NY.
The components of lease expense were as follows:
| Three Months Ended March 31, 2022 | Three Months Ended March, 2021 | Nine Months Ended | Nine Months Ended | |||||||||||||
| Operating Lease Expense | $ | $ | $ | $ | ||||||||||||
Supplemental balance sheet information related to leases was as follows (in thousands):
| Classification on the Condensed Consolidated Balance Sheet | March 31, 2022 | June 30, 2021 | ||||||||
| Assets | ||||||||||
Operating lease right-of-use asset, net | Other non-current assets | $ | $ | |||||||
| Liabilities | ||||||||||
Operating lease liability - current | Current liabilities | |||||||||
Operating lease liability – long term | Other non-current liabilities | |||||||||
| Weighted Average Remaining Lease Term: | ||||||||||
| Operating leases | ||||||||||
| Weighted Average Discount Rate: | ||||||||||
| Operating leases | % | % | ||||||||
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The following table outlines the minimum future lease payments for the next five years and thereafter, (in thousands):
| For the year ending June 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments (undiscounted cash flows) | ||||
| Less imputed interest | ( | ) | ||
| Total | $ | |||
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 “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”).
Litigation, Claims and Assessments
On October 4, 2021, the Company and its subsidiary, Akoustis, Inc., were named as defendants in a complaint filed by Qorvo, Inc. in the United States District Court for the District of Delaware alleging, among other things, patent infringement, false advertising, false patent marking, and unfair competition. The complaint alleges that the defendants misappropriated proprietary information, made misleading statements about the characteristics of certain of its products, and sold products infringing on the certain of the plaintiff’s patents. The plaintiff seeks an injunction enjoining the defendants from the alleged infringement and damages, including punitive and statutory enhanced damages, in an unspecified amount. The Company believes this lawsuit is without merit and intends to defend against it vigorously. However, it can provide no assurance as to the outcome of such dispute, and such action may result in judgments against the Company for an injunction, significant damages or other relief, such as future royalty payments to Qorvo, Inc. Even if ultimately settled or resolved in the Company’s favor, this action may result in significant expenses, diversion of management and technical personnel attention and disruptions and delays in the Company’s business, all of which could have a material adverse effect on its business, financial condition and results of operations.
From time to time, the Company may become involved in lawsuits, investigations and claims that arise in the ordinary course of business. 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 that, as of March 31, 2022, the amount of liability, if any, with respect to such actions, would not materially affect its financial position, results of operations or cash flows.
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Note 13. Segment Information
Operating segments are defined as components of
an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or
decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision
maker is its Chief Executive Officer. The Company operates in
The Company evaluates performance of its operating segments based on revenue and operating profit (loss). Segment information for the three and nine months ended March 31, 2022 and 2021 are as follows (in thousands):
| Foundry/ Fabrication Services | RF Product | Total | ||||||||||
| Three months ended March 31, 2022 | ||||||||||||
| Revenue with customers | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ( | ) | ( | ) | ( | ) | ||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | ( | ) | |||||
| Three months ended March 31, 2021 | ||||||||||||
| Revenue with customers | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | |||||||
| Nine months ended March 31, 2022 | ||||||||||||
| Revenue with customers | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ( | ) | ( | ) | ( | ) | ||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | ( | ) | |||||
| Nine months ended March 31, 2021 | ||||||||||||
| Revenue with customers | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | |||||||
| As of March 31, 2022 | ||||||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| As of June 30, 2021 | ||||||||||||
| Accounts receivable | $ | $ | $ | |||||||||
Note 14. Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the three and nine months ended March 31, 2022 and March 31, 2021 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.
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The Company had the following common stock equivalents at March 31, 2022 and 2021:
| March 31, 2022 | March 31, 2021 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total | ||||||||
Note 15. Income Taxes
On October 15, 2021, the Company acquired a majority
ownership position in RFMi, a fabless supplier of acoustic wave RF resonators and filters. The Company acquired a
The Company’s income tax expense (benefit)
was ($
The Company’s effective tax rate for the three and nine months ended March 31, 2022 and March 31, 2021, differed from the statutory rate primarily due to state taxes and the recording of a valuation allowance against certain separate company deferred tax assets.
Note 16. Fair Value Measurement
Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1: Observable prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
The following table sets forth a summary of the changes in the fair value of Level 3 contingent consideration that are measured at fair value on a recurring basis:
| Contingent consideration | March 31, 2022 | March 31, 2021 | ||||||
| Beginning balance | $ | $ | ||||||
| Initial fair value of contingent consideration | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Ending balance | $ | $ | ||||||
The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a Monte Carlo simulation in an option pricing framework with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future sales revenue of RFMi products in each of calendar year 2022 and 2023 and the volatility of those revenues, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer.
Note. 17. Subsequent Events
RFMi Second Closing
The Company previously announced its acquisition of
a
ATM Sales Agreement
On May 2, 2022 the Company entered into an ATM Sales
Agreement with Oppenheimer & Co. Inc., Craig-Hallum Capital Group LLC and Roth Capital Partners, LLC pursuant to which the Company
may sell from time to time shares of its common stock having an aggregate offering price of up to $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report to “Akoustis,” the “Company,” “we,” “us,” and “our” refer to Akoustis Technologies, Inc. and its consolidated subsidiaries.
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 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) projections 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), (iii), (iv) or (v) above.
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 inability to obtain adequate financing and sustain our status as a going concern; 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; the impact of the COVID-19 pandemic on our operations, financial condition and the worldwide economy, including its impact on our ability to access the capital markets; general economic conditions, including upturns and downturns in the industry; shortages in supplies needed to manufacture our products, or needed by our customers to manufacture devices incorporating our products; our limited number of patents; failure to obtain, maintain, and enforce our intellectual property rights; claims of infringement, misappropriation or misuse of third party intellectual property that, regardless of merit, could result in significant expense and loss of our intellectual property rights; our inability to attract and retain qualified personnel; the outcome of current and any future litigation; our inability to attract and retain qualified personnel; our reliance on third parties to complete certain processes in connection with the manufacture of our products; product quality and defects; existing or increased competition; our ability to market and sell our products; our inability to successfully manufacture, market and sell products based on our technologies; our ability to meet the required specifications of customers and achieve qualification of our products for commercial manufacturing in a timely manner; our inability to successfully scale our New York wafer fabrication facility and related operations while maintaining quality control and assurance and avoiding delays in output; contracting with customers and other parties with greater bargaining power and agreeing to terms and conditions that may adversely affect our business; the possibility that the anticipated benefits from our business acquisitions (including the acquisition of RFM Integrated Device, Inc. (“RFMi”)) will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ (including RFMi’s) operations will be greater than expected and the possibility of disruptions to our business during integration efforts and strain on management time and resources; risks related to doing business in foreign countries, including China; any security breaches, cyber-attacks or other disruptions compromising our proprietary information and exposing us to liability; our failure to innovate or adapt to new or emerging technologies; our failure to comply with regulatory requirements; results of any arbitration or litigation that may arise; stock volatility and illiquidity; our failure to implement our business plans or strategies; and our failure to maintain effective internal control over financial reporting.
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These and other risks and uncertainties, which are described in more detail in Part II, Item 1A. “Risk Factors” of this report and in our Annual Report on Form 10-K, filed with the SEC on August 30, 2021 (the “2021 Annual Report”), could cause our actual results to differ materially from those expressed or implied by the forward-looking statements in this report. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them. Except as may be required by law, we do not undertake any obligation to update the forward-looking statements contained in this report to reflect any new information or future events or circumstances or otherwise.
Overview
Akoustis® is an emerging commercial product company focused on developing, designing, and manufacturing innovative RF filter solutions for the wireless industry, including for products such as smartphones and tablets, network infrastructure equipment, Wi-Fi Customer Premise Equipment (“CPE”) and defense applications. Filters are critical in selecting and rejecting signals, and their performance enables differentiation in the modules defining the RF front-end (“RFFE”). Located between the device’s antenna and its digital backend, the RFFE is the circuitry that performs the analog signal processing and contains components such as amplifiers, filters and switches. We have developed a proprietary microelectromechanical system (“MEMS”) based bulk acoustic wave (“BAW”) technology and a unique manufacturing process flow, called “XBAW®”, for our filters produced for use in RFFE modules. Our XBAW® filters incorporate optimized high purity piezoelectric materials for high power, high frequency and wide bandwidth operation. We are developing RF filters for 5G, Wi-Fi and defense bands using our proprietary resonator device models and product design kits (PDKs). As we qualify our RF filter products, we are engaging with target customers to evaluate our filter solutions. Our initial designs target UHB, sub 7 GHz 5G, Wi-Fi and defense bands. We expect our filter solutions will address problems (such as 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 5G, and Wi-Fi. We have prototyped, sampled and begun commercial shipment of our single-band low loss BAW filter designs for 5G frequency bands and 5 GHz and 6 GHz Wi-Fi bands which are suited to competitive BAW solutions and historically cannot be addressed with low-band, lower power handling surface acoustic wave (“SAW”) technology. Additionally, through our majority-owned subsidiary, RFMi, we make sales of complementary SAW resonators, RF filters, crystal (Xtal) resonators and oscillators, and ceramic products.
We own and/or have filed applications for patents on the core resonator device technology, manufacturing facility and intellectual property (“IP”) necessary to produce our RF filter chips and operate as a “pure-play” RF filter supplier, providing discrete filter solutions direct to Original Equipment Manufacturers (“OEMs”) and aligning with the front- end module manufacturers that seek to acquire high performance filters to expand their module businesses. We believe this business model is the most direct and efficient means of delivering our solutions to the market.
Technology. Our device technology is based upon bulk-mode acoustic resonance, which we believe is superior to surface-mode resonance for high-band and ultra-high- band (“UHB”) applications that include 4G/LTE, 5G, Wi-Fi, and defense applications. Although some of our target customers utilize or manufacture the RFFE module, they may lack access to critical UHB filter technology that we produce, which is necessary to compete in high frequency applications.
Manufacturing. We currently manufacture Akoustis’ high-performance RF filter circuits, using our first generation XBAW® wafer process, in our 120,000-square foot wafer-manufacturing facility located in Canandaigua, New York (the “NY Facility”), which we acquired in June 2017. RFMi products are manufactured by a third party and sold either directly to consumers or sold and shipped with Akoustis products.
Intellectual Property. As of April 15, 2022, our IP portfolio included 58 patents, including a blocking patent that we have licensed from Cornell University. Additionally, as of April 15, 2022, we have 100 pending patent applications. These patents cover our XBAW® RF filter technology from raw materials through the system architectures.
By designing, manufacturing, and marketing our RF filter products to mobile phone OEMs, defense OEMs, network infrastructure OEMs, and Wi-Fi CPE OEMs, we seek to enable broader competition among the front-end module manufacturers.
19
Since we own and/or have filed applications for patents on the core technology and control access to our intellectual property, we expect to offer several ways to engage with potential customers. First, we intend to engage with multiple wireless markets, providing standardized filters that we design and offer as standard catalog components. Second, we expect to deliver unique filters to customer-supplied specifications, which we will design and fabricate on a customized basis. Finally, we may offer our models and design kits for our customers to design their own 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 and production orders, government grants, foundry and engineering services, and sales of debt and equity securities. The Company has incurred losses, 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 design solutions.
To succeed, we must convince mobile phone OEMs, RFFE module manufacturers, network infrastructure OEMs, Wi-Fi CPE OEMs and defense customers to use our XBAW® filter technology in their systems and modules. 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.
We plan to pursue RF filter design and R&D development agreements and potentially joint ventures with target customers and other strategic partners, although we cannot guarantee we will be successful in these efforts. These types of arrangements may subsidize technology development costs and qualification, filter design costs, and offer complementary technology and market intelligence and other avenues to revenue. However, we intend to retain ownership of our core technology, intellectual property, designs, and related improvements. We expect to pursue development of catalog designs for multiple customers and to offer such catalog products in multiple sales channels.
Impact of COVID-19 on our Business
Although the ultimate impact of the COVID-19 pandemic on our business is unknown, in an effort to protect the health and safety of our employees, we have taken proactive, precautionary action, including when warranted by state and local guidelines. Our actions continue to evolve in response to new government measures and scientific knowledge regarding COVID-19. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. These measures have impacted the method and timing of certain business meetings and deliverables to certain customers, as well as our ability to obtain certain materials, equipment and services from suppliers.
These actions and the global health crisis caused by COVID-19 have negatively impacted business activity across the globe. We have observed declining demand and price reductions in the electronics industry as business and consumer activity has decelerated. Additionally, COVID-19 has contributed to some of the delays we have observed in certain suppliers’ shipment of materials necessary for us to manufacture our products and in certain vendors’ ability to deliver equipment for installation at our facilities. When COVID-19 is demonstrably contained, we anticipate that its effects on global commerce will subside; however, the timing and extent of this is uncertain.
We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the ultimate effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of fiscal year 2022 or beyond.
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Recent Developments
On January 31, 2022, Akoustis announced that it had received five new design wins, increasing the total number of Wi-Fi design wins from eight to thirteen.
On February 10, 2022, the Company announced the appointment of Ken Boller as its new Chief Financial Officer.
On February 22, 2022, Akoustis announced that it had received a 5G mobile XBAW filter order form a new Tier-1 radio frequency module and filter maker.
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 2021 Annual Report.
Results of Operations
Three Months Ended March 31, 2022 and 2021
Revenue
The Company recorded revenue of $4.6 million for the three months ended March 31, 2022 as compared to $2.5 million for the three months ended March 31, 2021. The increase of $2.1 million was primarily due to an increase in RF product revenue of $3.2 million or 328%, which includes revenue from sales of RFMi products. Partially offsetting this increase was a decrease in non-recurring engineering services of $1.1 million.
Cost of Revenue
Cost of revenue includes direct labor, material, net realizable value (NRV) adjustments, and facility costs primarily associated with foundry services revenue, manufacturing of filter products and engineering services. The Company recorded cost of revenue of $5.4 million for the three months ended March 31, 2022 as compared to $3.0 million for the three months ended March 31, 2021. The $2.4 million increase is primarily due to costs associated with RF product revenue which increased by $2.3 million, which includes cost of revenue from sales of RFMi products.
Research and Development Expenses
R&D expenses were $8.3 million for the three months ended March 31, 2022 and were $3.1 million, or 59% higher than the prior year amount for the same period of $5.2 million. Personnel costs, including stock-based compensation, were $4.1 million compared to $3.1 million in the prior year period, an increase of $1.0 million or 33.8%. Facility costs, including depreciation, of $1.8 million primarily associated with the NY Facility were $0.9 million higher than the prior period. Lastly, R&D material costs were $1.3 million higher than the prior period.
General and Administrative Expense
General and administrative (“G&A”) expenses include salaries and wages for executive and administrative staff, stock-based compensation, professional fees, insurance costs and other general costs associated with the administration of our business. G&A expenses for the three months ended March 31, 2022 were $5.7 million, which is an increase of $2.3 million compared to the three months ended March 31, 2021. Year-over-year changes within G&A expenses include an increase in employee compensation (including stock-based compensation) of $0.9 million as well as increased general expenses of $1.5 million, primarily professional fees and intangible amortization.
21
Other (Expense)/Income
Other expense for the three months ended March 31, 2022 was $155 thousand, which was comprised of a loss the change in fair value of contingent consideration of $180 thousand partially offset by interest income. Other expenses for the three months ended March 31, 2021 were $1.1 million, consisting of $2.0 million of debt discount amortization and interest expense which was partially offset by a gain on fair value of derivative liability of $0.9 million.
Net Loss
The Company recorded a net loss of $14.8 million for the three months ended March 31, 2022, compared to a net loss of $10.2 million for the three months ended March 31, 2021. The period-over-period incremental loss of $4.6 million, or 45%, was primarily driven by an increase in cost of revenue of $2.4 million, an increase in G&A expenses and R&D expenses of $5.4 million. These expense increases were partially offset by a revenue increase of $2.1 million and a decrease in other expenses of $0.9 million.
Nine Months Ended March 31, 2022 and 2021
Revenue
The Company recorded revenue of $10.1 million for the nine months ended March 31, 2022 as compared to $4.5 million for the nine months ended March 31, 2021. The increase of $5.7 million was primarily due to an increase in RF product revenue of $7.0 million or 350%, which includes revenue from sales of RFMi products. This increase was partially offset by a decrease in non-recurring engineering services of $1.1 million.
Cost of Revenue
Cost of revenue includes direct labor, material, net realizable value (NRV) adjustments, and facility costs primarily associated with foundry services revenue, manufacturing of filter products and engineering services. The Company recorded cost of revenue of $12.8 million for the nine months ended March 31, 2022 as compared to $7.2 million for the nine months ended March 31, 2021. The $5.6 million increase is primarily due to costs associated with RF product revenue which increased by $5.0 million, which includes cost of revenue from sales of RFMi products. In addition, non-recurring engineering costs increased by $0.6 million.
Research and Development Expenses
R&D expenses were $25.5 million for the nine months ended March 31, 2022 and were $8.3 million, or 48.4% higher than the prior year amount for the same period of $17.2 million. Personnel costs, including stock-based compensation, were $13.7 million compared to $9.6 million in the prior year period, an increase of $4.1 million or 42.7%. Facility costs, including depreciation, of $5.8 million primarily associated with the NY Facility were $2.7 million higher than the prior period. R&D material costs of $5.6 million were $1.6 million higher than the prior period.
General and Administrative Expense
General and administrative (“G&A”) expenses include salaries and wages for executive and administrative staff, stock-based compensation, professional fees, insurance costs and other general costs associated with the administration of our business. G&A expenses for the nine months ended March 31, 2022 were $14.7 million, which is an increase of $5.0 million compared to the nine months ended March 31, 2021. Year-over-year changes within G&A expenses include an increase in employee compensation (including stock-based compensation) of $2.1 million as well as increased general expenses of $3.1 million, primarily related to professional fees, insurance expense and intangible amortization.
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Other (Expense)/Income
Other expense for the nine months ended March 31, 2022 was $92 thousand, which was comprised of a loss on the fair value of contingent consideration of $180 thousand partially offset by interest income. Other expenses for the nine months ended March 31, 2021 were $4.4 million, consisting of $5.2 million of debt discount amortization and interest expense offset by a gain on derivative liability valuation of $0.7 million.
Net Loss
The Company recorded a net loss of $42.9 million for the nine months ended March 31, 2022, compared to a net loss of $34.0 million for the nine months ended March 31, 2021. The period-over-period incremental loss of $8.9 million, or 26.1%, was primarily driven by an increase in cost of revenue of $5.6 million, an increase in G&A expenses and R&D expenses of $13.4 million. These expense increases were partially offset by a revenue increase of $5.7 million and a decrease in other expenses of $4.3 million.
Liquidity and Capital Resources
Financing Activities
During the nine months ended March 31, 2022, the Company sold a total of 3,644,396 shares of its common stock at a price to the public of an average of $7.17 per share under the ATM Equity OfferingSM Sales Agreement with BofA Securities, Inc. and Piper Sandler & Co., as amended on February 19, 2021 (the “Sales Agreement”) for aggregate gross proceeds of approximately $26.1 million, before deducting compensation paid to the sales agents and other offering expenses of approximately $0.5 million.
Balance Sheet and Working Capital
The Company had $55.9 million of cash and cash equivalents on hand as of March 31, 2022, which reflects a decrease of $32.4 million compared to $88.3 million as of June 30, 2021. The decrease is primarily due to cash used in operations of $33.3 million and cash used for investing activities of $25.6 million. These cash uses were partially offset by cash provided by financing activities of $26.4 million. The Company estimates that cash on hand will be sufficient to fund its operations, including current capital expense commitments, beyond the next twelve months from the date of filing of this Form 10-Q. However, the Company has historically incurred recurring operating losses and will continue to do so until it generates sufficient revenues from operations; as a result, we may need to obtain additional capital through the sale of additional equity securities, debt, or otherwise, to fund operations past that date. There is no assurance that the Company’s projections and estimates are accurate. The Company is actively managing and controlling the Company’s cash outflows to mitigate liquidity risks.
March 31, 2022 compared to June 30, 2021
As of March 31, 2022, the Company had current assets of $66.3 million made up primarily of cash on hand of $55.9 million. As of June 30, 2021, current assets were $93.2 million comprised primarily of cash on hand of $88.3 million.
Property, Plant and Equipment was $48.0 million as of March 31, 2022 as compared to a balance of $30.7 million as of June 30, 2021.
Total assets as of March 31, 2022 and June 30, 2021 were $132.1 million and $125.0 million, respectively.
Current liabilities as of March 31, 2022 and June 30, 2021 were $11.2 million and $7.3 million, respectively.
Long-term liabilities totaled $2.5 million as of March 31, 2022, compared to $0.3 million as of June 30, 2021. The increase is primarily due to the contingent liability and deferred tax liability which are discussed in Note 7 – Business Acquisition.
Equity was $118.4 million as of March 31, 2022, compared to $117.4 million as of June 30, 2021, an increase of $1.0 million, or 0.8%. This increase was primarily due to the increase in additional paid-in-capital (“APIC”) of $36.4 million for the nine months ended March 31, 2022 which was offset by the net loss for the nine months ended March 31, 2022 of $42.9 million. The increase in APIC was primarily due to common stock issued for cash of $25.6 million and common stock issued for services of $7.8 million.
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Cash Flow Analysis
Operating activities used cash of $33.3 million during the nine months ended March 31, 2022 and $22.1 million during the comparative period ended March 31, 2021. The $11.2 million period- over-period increase in cash used was attributable to higher operating expenses associated with the ramp of development and commercialization activities (primarily R&D and production personnel and material costs).
Investing activities used cash of $25.6 million for the nine months ended March 31, 2022 compared to $9.9 million for the comparative period ended March 31, 2021. The $15.6 million period-over-period increase was primarily due to increased purchases of production equipment of $11.9 million and net cash paid for acquisitions of $4.1 million. On October 15, 2021, the Company acquired a 51% ownership interest in RFMi from Tai-Saw Technology Co., Ltd. (“TST”) in exchange for $6.0 million in cash and approximately $2.5 million payable in common stock of the Company. On April 29, 2022, the Company acquired the remaining 49% ownership interest in RFMi from TST for an additional $3.5 million in cash and 420,053 shares of the Company’s common stock with a fair value at closing of $1.9 million. Additionally, earn-out payments aggregating up to $3.0 million payable in cash and/or shares of common stock of the Company may be payable to TST based on the future operating results of RFMi.
Financing activities increased cash by $26.4 million during the nine months ended March 31, 2022 primarily due to proceeds from issuance of common stock pursuant to the Sales Agreement. In addition, stock option grants, warrant exercises and the employee stock purchase plan resulted in cash proceeds of $0.7 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
As of March 31, 2022, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation described above that, as of March 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2022, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
Except for the matter described under “Litigation, Claims and Assessments” in “Note-12 – Commitments and Contingencies” of the condensed consolidated financial statements in this Item 1 of Part I of this Quarterly Report on Form 10-Q, which description is incorporated in this “Item 1. Legal Proceedings” by reference, we are currently not aware of any material pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.
ITEM 1A. RISK FACTORS.
In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Except as set forth below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our 2021 Annual Report.
We are, and may become, subject to claims of infringement, misappropriation or misuse of third party intellectual property that, regardless of merit, could result in significant expense and loss of our intellectual property rights.
The semiconductor industry is characterized by the vigorous pursuit and protection of intellectual property rights. We have not undertaken a comprehensive review of the rights of third parties in our field. From time to time, we may be named in lawsuits or receive notices or inquiries from third parties regarding our products or the manner in which we conduct our business suggesting that we may be infringing, misappropriating or otherwise misusing patent, copyright, trademark, trade secret and other intellectual property rights. Any claims that our technology infringes, misappropriates or otherwise misuses the rights of third parties, regardless of their merit or resolution, could be expensive to litigate or settle and could divert the efforts and attention of our management and technical personnel, cause significant delays and materially disrupt the conduct of our business. We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required to:
| ● | pay substantial damages, including treble damages if we were held to have willfully infringed; |
| ● | cease the manufacture, offering for sale or sale of the infringing technology or processes; |
| ● | expend significant resources to develop non-infringing technology or processes; |
| ● | obtain a license from a third party, which may not be available on commercially reasonable terms, or may not be available at all; or |
| ● | lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others. |
On October 4, 2021, the Company was named as a defendant in a complaint filed by Qorvo, Inc. in the United States District Court for the District of Delaware alleging, among other things, patent infringement, false advertising, false patent marking, and unfair competition. The plaintiff seeks an injunction enjoining us from the alleged infringement and damages, including punitive and statutory enhanced damages, in an unspecified amount. We believe this lawsuit is without merit and intend to defend against it vigorously. However, we can provide no assurance as to the outcome of such dispute, and such action may result in judgments against us for an injunction, significant damages or other relief, such as future royalty payments to Qorvo, Inc. or restrictions on certain of our activities. Resolution of such matter may be prolonged and costly, and the ultimate result or judgment is uncertain due to the inherent uncertainty in litigation and other proceedings. Even if ultimately settled or resolved in our favor, this and other possible future actions may result in significant expenses, diversion of management and technical personnel attention and disruptions and delays in our business and product development, and other collateral consequences, all of which could have a material adverse effect on our business, financial condition and results of operations. Any out-of-court settlement of this or other actions may also have an adverse effect on our business, financial condition and results of operations, including, but not limited to, substantial expenses, the payment of royalties, licensing or other fees payable to third parties, or restrictions on our ability to develop, manufacture and sell our products.
Defense of any intellectual property infringement claims against us, regardless of their merit, would involve substantial litigation expense and would be a significant diversion of resources from our business. In the event of the foregoing or another successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, limit our business to avoid the infringing activities, pay royalties and/or redesign our infringing technology or alter related formulations, processes, methods or other technologies, any or all of which may be impossible or require substantial time and monetary expenditure. The occurrence of any of the above events could prevent us from continuing to develop and commercialize our filters and our business could materially suffer.
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In addition, our agreements with prospective customers and manufacturing partners may require us to indemnify such customers and manufacturing partners for third party intellectual property infringement claims. Pursuant to such agreements, we may be required to defend such customers and manufacturing partners against certain claims that could cause us to incur additional costs. While we endeavor to include as part of such indemnification obligations a provision permitting us to assume the defense of any indemnification claim, not all of our current agreements contain such a provision and we cannot provide any assurance that our future agreements will contain such a provision, which could result in increased exposure to us in the case of an indemnification claim.
We have recently engaged, and may in the future engage, in acquisitions that could disrupt our business, cause dilution to our shareholders and harm our financial condition and operating results.
In October 2021, we acquired a majority ownership position in RFM Integrated Device, Inc. (“RFMi”) and, on April 29, 2022, exercised the right to acquire the remaining 49%. The consideration for the acquisition includes cash and common stock as well as possible earn-out payments that may be paid in cash or common stock based on its future trading price. We may in the future make additional acquisitions of, or investments in, companies that we believe have products or capabilities that are a strategic or commercial fit with our current business or otherwise offer opportunities for our company. In connection with these acquisitions or investments, we may:
| ● | issue common stock or other forms of equity that would dilute our existing shareholders’ percentage of ownership, |
| ● | incur debt and assume liabilities, and |
| ● | incur amortization expenses related to intangible assets or incur large and immediate write-offs. |
We may not be able to complete acquisitions on favorable terms, if at all. If we do complete an acquisition, such as of RFMi, we cannot assure you that it will ultimately strengthen our competitive position, that it will be viewed positively by customers, financial markets or investors or that we will otherwise realize the expected benefits of such an acquisition to the anticipated extent or at all. Furthermore, the acquisition of RFMi and any future acquisitions could pose numerous additional risks to our expected operations, including, but not limited to:
| ● | problems integrating the purchased business, products or technologies, |
| ● | challenges in achieving strategic objectives, cost savings and other anticipated benefits, |
| ● | increases to our expenses, |
| ● | the assumption of significant liabilities, which may have been previously unknown or not discoverable through diligence, that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party, |
| ● | inability to maintain relationships with prospective key customers, vendors and other business partners of the acquired businesses, |
| ● | diversion of management’s attention from its day-to-day responsibilities, |
| ● | difficulty in maintaining controls, procedures and policies during the transition and integration, |
| ● | entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions, |
| ● | potential loss of key employees, particularly those of the acquired entity, and |
| ● | historical financial information may not be representative or indicative of our results as a combined company. |
The ongoing COVID-19 pandemic and a supply shortage experienced by the semiconductor industry have disrupted and will likely continue to disrupt normal business activity, and may have an adverse effect on our results of operations.
The global spread of COVID-19 and the efforts to control it have disrupted, and reduced the efficiency of, normal business activities in much of the world. The pandemic has resulted in authorities around the world implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter in place orders, factory and office shutdowns and vaccine mandates. COVID-19 measures have impacted, and will likely continue to impact, our operations and those of our customers, contract manufacturers, suppliers and logistics providers. At the same time, and to some extent relatedly, the global silicon semiconductor industry is experiencing a shortage in supply and difficulties in ability to meet customer demand. In particular, the recent government-mandated COVID-19 containment measures in China have impacted supply shipments and created ongoing risk and uncertainty. These issues have led to an increase in lead-times of the production of semiconductor chips and components.
We have experienced, and expect to continue to experience, disruption to parts of our semiconductor supply chain, including procuring necessary components and inputs, such as wafers and substrates, in a timely fashion, with suppliers increasing lead times or placing products on allocation and raising prices. We have also incurred higher costs to secure available inventory, or have extended our purchase commitments or placed non-cancellable orders with suppliers, which introduces inventory risk if our forecasts and assumptions are inaccurate. In addition, disruptions to commercial transportation infrastructure have increased delivery times for materials and components to our facilities and, in some cases, our ability to timely ship our products to customers. We have seen some of our customers become more conservative in response to these complications by reducing their purchases and inventories or postponing capital expenditures, including product orders from us.
We believe the global supply chain challenges and their adverse impact on our business will persist and the degree to which the pandemic ultimately impacts our business and results of operations will depend on future developments beyond our control.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
Other than any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
The information set forth below is included herein for the purpose of providing disclosure under Item 1.01 (Entry into a Material Definitive Agreement) of Form 8-K.
On May 2, 2022, the Company entered into an ATM Sales Agreement (the “Sales Agreement”) with Oppenheimer & Co. Inc., Craig-Hallum Group LLC and Roth Capital Partners, LLC (each, a “Sales Agent” and, together, the “Sales Agents”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time through the Sales Agents shares of the Company’s common stock having an aggregate offering price of up to $50,000,000 (the “Shares”). Sales of Shares, if any, may be made by means of transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including block trades, ordinary brokers’ transactions on the Nasdaq Capital Market or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or by any other method permitted by law. The Company intends to use the net proceeds from the offering, after deducting the Sales Agents’ commissions and the Company’s offering expenses, for general corporate purposes.
Under the terms of the Sales Agreement, the Company may also sell Shares to any of the Sales Agents as principal for its own accounts at a price to be agreed upon at the time of sale. Any sale of Shares to a Sales Agent as principal would be pursuant to the terms of a separate terms agreement between the Company and such Sales Agent.
The Company has no obligation to sell any of the Shares under the Sales Agreement and may at any time suspend solicitation and offers under the Sales Agreement.
The Shares will be offered and sold pursuant to the Company’s registration statement on Form S-3 (File No. 333-262540), as supplemented by the prospectus supplement dated May 2, 2022.
The foregoing summary of the Sales Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sales Agreement, which is attached as a Exhibit 1.1 to this Quarterly Report on Form 10-Q and incorporated by reference into this Item 5.
A copy of the opinion of K&L Gates LLP relating to the legality of the issuance and sale of the Shares is attached as Exhibit 5.1
hereto.
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ITEM 6. EXHIBITS.
The exhibits in the Exhibit Index below are filed or furnished, as applicable, as part of this report.
EXHIBIT INDEX
| * | Filed herewith |
| † | Management contract or compensatory plan or arrangement |
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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: May 02, 2022 | Akoustis Technologies, Inc. | |
| By: | /s/ Kenneth E. Boller | |
| Kenneth E. Boller | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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