Filed Pursuant to Rule
424(b)(4)
Registration No. 333-212508
Akoustis
Technologies, Inc.
Prospectus
4,024,900 Shares
Common Stock
This prospectus relates to the sale of
up to 4,024,900 shares of our common stock, par value $0.001 per share, by the selling stockholders of Akoustis Technologies, Inc.,
a Nevada corporation, listed in this prospectus. Of the shares being offered, 2,530,000 are presently issued and outstanding,
153,714 are issuable upon exercise of common stock purchase warrants and 1,341,186 represent a good faith estimate of the number
of shares which may become issuable pursuant to the price-protected anti-dilution provision applicable to 2,235,310 of the 2,530,000
outstanding shares referenced above. (See “Description of Business – The 2016 Offering” for the terms of the
anti-dilution provision). The shares offered by this prospectus may be sold by the selling stockholders from time to time in the
open market, through privately negotiated transactions or a combination of these methods, at market prices prevailing at the time
of sale or at negotiated prices.
The distribution of the shares by the
selling stockholders is not subject to any underwriting agreement. We will not receive any proceeds from the sale of
the shares by the selling stockholders. We will bear all expenses of registration incurred in connection with this
offering, but all selling and other expenses incurred by the selling stockholders will be borne by them.
Our common stock is traded on OTC Markets
under the symbol “AKTS.” On July 22, 2016, the last reported sale price for our common stock was $3.60 per share.
We are an “Emerging Growth Company”
as defined in the Jumpstart our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public
company reporting requirements for this prospectus and future filings. See “Prospectus Summary – Implications of Being
an Emerging Growth Company.”
Our business and an investment in our
securities involve a high degree of risk. Before making any investment in our securities, you should read and carefully
consider risks described in the “Risk Factors” section beginning on page 7 of this prospectus.
You should rely only on the information
contained in this prospectus or any prospectus supplement or amendment thereto. We have not authorized anyone to provide you with
different information. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus
is only accurate on the date of this prospectus, regardless of the time of any sale of securities.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus is dated July 22, 2016.
You should rely only on the information
contained in this prospectus. We have not authorized any other person to provide you with information that is different from that
contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We
take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give
you. The selling stockholders are offering to sell and seeking offers to buy these securities only in jurisdictions where offers
and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial
condition, results of operations and prospects may have changed since that date.
We are not making an offer of any securities
in any jurisdiction where the offer is not permitted.
TABLE OF CONTENTS
PROSPECTUS SUMMARY
The following summary highlights information
contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that
should be considered before investing in our common stock. Potential investors should read the entire prospectus carefully,
including the more detailed information regarding our business provided below in the “Description of Business” section,
the risks of purchasing our common stock discussed under the “Risk Factors” section, and our financial statements
and the accompanying notes to the financial statements.
Unless the context indicates otherwise,
all references in this registration statement to “Akoustis Technologies,” the “Company,” “we,”
“us” and “our” refer to Akoustis Technologies, Inc. and its wholly owned consolidated subsidiary, Akoustis,
Inc. and references to Akoustis refer to Akoustis, Inc.
This prospectus includes the trademarks
of Akoustis, Inc., Akoustis
TM
and Bulk One
TM
, See “Description of Business – Intellectual Property”.
All references to Akoustis and Bulk One in this prospectus are intended to include reference to such trademarks.
Overview
Akoustis
TM
is an early stage,
“fabless” company developing, designing and manufacturing innovative radio frequency (RF) filter products for the
mobile wireless device industry. We use a fundamentally new piezoelectric resonator technology that we call Bulk ONE
TM
in the manufacturing of bulk acoustic wave (BAW) resonators, the building blocks of high selectivity “RF” filters
required to route signals in a smartphone or other mobile or wearable device. Filters are a critical component of the RF front-end
(RFFE), and their use has multiplied with the launch and licensing of 4G/LTE frequency bands. They are used to define the range
of frequencies of radio signals that are transmitted (the “passband”) and simultaneously reject unwanted signals.
The increasing demand for wireless data and user applications is driving an increase in the number of wireless channels or frequency
bands in a single device. Each new band introduced creates an increase in a demand for filters. A high-end smartphone, for example,
must filter the transmit and receive paths for 2G, 3G and 4G wireless access methods in up to 15 bands, as well as Wi-Fi, Bluetooth
and in some cases GPS. Signals in the receive paths must be isolated from one another. The filters also must reject other extraneous
signals from numerous sources. The current approach to RF filter manufacturing utilizes thin-film polycrystalline materials (thin-film
bulk acoustic resonators, or “FBARs”) with relatively high resistance that dissipate a significant amount of the energy
in the signal (referred to as “lossy”), resulting in front-end heat generation and reduced battery life. In order
to compensate for such losses, the power amplifier specifications are increased, by as much as a factor of two, which further
reduces the battery life and puts more demands on the thermal management of the mobile device.
As the filter count per mobile device increases,
these inefficiencies will become more limiting. We plan to use single crystal piezoelectric materials to develop a new class of
RF filters with a fundamental advantage to reduce losses over existing thin film technologies. Our technology has not yet obtained
marketing approval or been verified in commercial manufacturing and our RF filters have yet to generate any sales. We have incurred
accumulated losses from our inception through March 31, 2016 of $4,157,176. We have fabricated research and development (“R&D”)
resonators demonstrating the feasibility of our Bulk ONE technology, and are in the process of transitioning the technology into
a production-capable wafer fabrication facility. Our business model involves “fabless” manufacturing, meaning that
we leverage capital investments and capacity of our strategic partners to manufacture our wafers. Once our technology is qualified
for manufacturing, we expect to design and sell single crystal BAW RF filter products using our Bulk ONE technology.
We believe our technology is disruptive
to the RF front-end market through the following expected advantages:
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Wider bandwidth coverage,
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Improved
power compression and linearity,
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Reduced
power amplifier cost for the ultimate purpose of manufacturing our BAW RF filters,
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Reduced
heat generation and reduced battery loading, and
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Reduced
guard band between adjacent frequency bands.
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Once our Bulk ONE technology is qualified
for production, our product focus is on innovative single-band filter products for the growing RFFE market, which can
be used to make duplexer or multiplexer filter products necessary for the Mobile Internet. These products present the greatest
near-term potential for commercialization of our technology. According to the May 2013 McKinsey Global Institute report, the Mobile
Internet and the so-called “Internet of Things” (IoT) is one of the twelve potentially economically disruptive technologies
with an estimated economic value impact that could be over $25 trillion.
During the past year, Akoustis has evaluated
single crystal group-III element nitride piezoelectric materials from at least six suppliers. In early 2015, we signed a joint
development agreement and supply agreement with a foundry partner, and since that time, we have transferred our R&D resonator
process flow to our foundry partner and evaluated single crystal piezoelectric materials ranging from GaN to AlN. Since transferring
our process flow, we completed nine R&D mask design iterations and sixteen multi-wafer lots to advance the performance of our
resonator process. Regarding technical performance, Akoustis achieved an experimental, two-port series-configured resonator with
K-squared of 12.5% for undoped single crystal AlN, approximately two-times higher than incumbent polycrystalline, undoped AlN.
We are currently focused on improving the accuracy of our library models as well as increasing the quality factor (Q) of our resonator.
While we have demonstrated a Q of up to 1600 for our fabricated resonators, we need to achieve a Q of greater than 2000 as our
next milestone. We expect significant progress toward this goal over the coming months. As we transition to production we expect
to optimize our process for the best combination of K-squared and Q.
We have earned no revenue from operations
since inception, and our operations have been funded with capital contributions, grants and debt. We have incurred losses totaling
approximately $4.16 million from inception through March 31, 2016.
For Glossary of technical terms used
herein, see “Description of Business—Glossary” below
Organizational History
We were incorporated as Danlax, Corp.,
in Nevada on April 10, 2013. Prior to the Merger (as defined below), our business was the development and sales of mobile games.
On May 22, 2015, our wholly owned subsidiary,
Akoustis Acquisition Corp., a corporation formed in the State of Delaware on May 15, 2015, merged (the “Merger”) with
and into Akoustis, Inc., a corporation incorporated in the State of Delaware on May 12, 2014. Akoustis, Inc., was the surviving
corporation in the Merger and became our wholly owned subsidiary. All of the outstanding stock of Akoustis, Inc., was exchanged
for shares of our Common Stock, as described in more detail under “Description of Business – Organizational History.”
As a result of the Merger, we discontinued
our pre-Merger business and acquired the business of Akoustis, Inc., and have continued the existing business operations of Akoustis,
Inc., as a publicly-traded company under the name Akoustis Technologies, Inc.
In accordance with “reverse merger”
accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Merger were replaced
with the historical financial statements of Akoustis, Inc., prior to the Merger in all filings with the SEC.
Capital Needs
The Company believes that it has sufficient
cash to fund its operations through March 31, 2017. However, there is no assurance that the Company’s projections
and estimates are accurate. In the event that the Company does not receive anticipated proceeds from research grants or
such grant payments are delayed, or the Company experiences costs in excess of estimates to continue its research and development
plan, it is possible that the Company would not have sufficient resources to continue as a going concern for the next year. In
order to mitigate these risks, the Company is actively managing and controlling the Company’s cash outflows.
About This Offering
This prospectus relates to the public offering,
which is not being underwritten, by the selling stockholders listed in this prospectus, of up to 4,024,900 shares of our common
stock. Of the shares being offered, 2,530,000 are presently issued and outstanding, 153,714 are issuable upon exercise
of common stock purchase warrants and 1,341,186 shares represent a good faith estimate of the number of shares which may become
issuable pursuant to the price-protected anti-dilution provision applicable to 2,235,310 of the 2,530,000 outstanding shares referenced
above. Such 1,341,186 represent the number of shares that would become issuable were we to trigger the application of the anti-dilution
provision by issuing common stock or common stock equivalents at a price of $1.00 per share. We have no present expectation
that we will trigger such anti-dilution provision. The shares offered by this prospectus may be sold by the selling stockholders
from time to time in the open market, through negotiated transactions or otherwise at market prices prevailing at the time of sale
or at negotiated prices. We will receive none of the proceeds from the sale of the shares by the selling stockholders. We
will bear all expenses of registration incurred in connection with this offering, but all selling and other expenses incurred by
the selling stockholders will be borne by them.
Selected Risks Associated with an Investment in Shares of
Our Common Stock
An investment in shares of our common
stock is highly speculative and is subject to numerous risks described in the section entitled “Risk Factors” and
elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:
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We
have a limited operating history upon which investors can evaluate our business and future
prospects.
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The
wireless communication industry is subject to ongoing regulatory obligations and review.
Maintaining compliance with these requirements may result in significant additional expense
to us, and any failure to maintain such compliance could cause our business to suffer.
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We
have a history of losses, will need substantial additional funding to continue our operations
and may not achieve or sustain profitability in the future.
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If
we are unable to obtain additional financing on acceptable terms, we may have to curtail
our growth or cease our development plans and operations.
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You
could lose all of your investment.
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You
may experience dilution of your ownership interests because of the future issuance of
additional shares of our common or preferred stock or other securities that are convertible
into or exercisable for our common or preferred stock.
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There
currently is a very limited market for our common stock and there can be no assurance
that a consistent trading market will ever develop. Failure to develop or maintain a
trading market could negatively affect the value of our common stock and make it difficult
or impossible for you to sell your shares.
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We
may not generate revenues or achieve profitability.
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Our
products may not be accepted in the market.
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If
we are unable to establish effective marketing and sales capabilities or enter into agreements
with third parties to market and sell our RF filters, we may not be able to effectively
generate product revenues.
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If
we fail to obtain, maintain and enforce our intellectual property rights, we may not
be able to prevent third parties from using our proprietary technologies and may lose
access to technologies critical to our products.
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Corporate Information
Our principal executive offices are located
at 9805 Norcross Center Court, Suite H, Huntersville, North Carolina 28078. Our telephone number is 1-704-274-3590. Our website
address is
http://www.akoustis.com
. The information on, or that can be accessed through, our website is not part of this
prospectus.
Implications of Being an Emerging Growth
Company
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of
(i) December 31, 2019, the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common
stock pursuant to an effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which
we have total annual gross revenues of $1 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible
debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable
SEC rules. We expect that we will remain an emerging growth company for the foreseeable future, but cannot retain our emerging
growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2019. We
refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging
growth company” have the meaning associated with it in the JOBS Act. For so long as we remain an emerging growth company,
we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies
that are not emerging growth companies.
These exemptions include:
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being
permitted to provide only two years of audited financial statements, in addition to any
required unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
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not
being required to comply with the requirement of auditor attestation of our internal
controls over financial reporting;
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not
being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to
the auditor’s report providing additional information about the audit and the financial
statements;
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reduced
disclosure obligations regarding executive compensation; and
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not
being required to hold a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved.
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For as long as we continue to be an emerging
growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of that
classification. We have taken advantage of certain of those reduced reporting burdens in this prospectus. Accordingly, the information
contained herein may be different than the information you receive from other public companies in which you hold stock.
An emerging growth company can take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period
and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption of such
standards is required for other public reporting companies.
We are also a “smaller reporting
company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected
to take advantage of certain of the scaled disclosure available for smaller reporting companies.
THE OFFERING
Common stock currently outstanding
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15,465,981 shares (1)
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Preferred stock currently outstanding
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None
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Common stock offered by the Company
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None
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Common stock offered by the selling stockholders
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4,024,900 shares (2)
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Use of proceeds
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We will not receive any of the proceeds from the sales of our common stock by the selling
stockholders.
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OTC Markets symbol
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AKTS
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Risk Factors
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You should carefully consider the information set forth in this prospectus and, in particular, the specific
factors set forth in the “Risk Factors” section beginning on page 7 of this prospectus before deciding whether or not
to invest in shares of our common stock.
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(2)
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Consists of 2,530,000 outstanding shares of common stock, 153,714 shares of common stock issuable upon
exercise of common stock purchase warrants, and up to 1,341,186 shares of common stock which may become issuable pursuant to the
price-protected anti-dilution provision applicable to 2,235,310 of the 2,530,000 outstanding shares referenced herein.
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NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking
statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,”
and “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any
and all statements contained in this prospectus that are not statements of historical fact may be deemed forward-looking statements.
Terms such as “may,” “might,” “would,” “should,” “could,” “project,”
“estimate,” “pro-forma,” “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 prospectus 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 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 a discussion and analysis of financial condition by management or in the results of
operations included pursuant to the rules and regulations of the SEC, and (iv) the assumptions underlying or relating to any statement
described in points (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 we have no control over. 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, our limited operating history, our inability to generate revenues or achieve profitability, our inability to achieve
acceptance of our products in the market, 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 substantial
reliance on third parties to manufacture products, existing or increased competition, failure to innovate or adapt to new or emerging
technologies, results of arbitration and litigation, stock volatility and illiquidity, and our failure to implement our business
plans or strategies. A description of some of the risks and uncertainties that could cause our actual results to differ materially
from those described by the forward-looking statements in this prospectus appears in the section captioned “Risk Factors”
and elsewhere in this prospectus.
Readers are cautioned not to place undue
reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim
any obligation to update the forward-looking statements contained in this prospectus to reflect any new information or future
events or circumstances or otherwise.
RISK FACTORS
An investment in shares of our common
stock is highly speculative and involves a high degree of risk. We face a variety of risks that may affect our operations
or financial results and many of those risks are driven by factors that we cannot control or predict. Before investing
in our common stock you should carefully consider the following risks, together with the financial and other information contained
in this prospectus. If any of the following risks actually occurs, our business, prospects, financial condition and
results of operations could be materially adversely affected. In that case, the trading price of our common stock would
likely decline and you may lose all or a part of your investment. Only those investors who can bear the risk of loss
of their entire investment should invest in our common stock.
This prospectus contains certain statements
relating to future events or the future financial performance of our company. Prospective investors are cautioned that such statements
are only predictions and involve risks and uncertainties, and that actual events or results may differ materially. In evaluating
such statements, prospective investors should specifically consider the various factors identified in this prospectus, including
the matters set forth below, which could cause actual results to differ materially from those indicated by such forward-looking
statements.
If any of the following or other risks
materialize, our business, financial condition, and results of operations could be materially adversely affected which, in turn,
could adversely impact the value of our Common Stock. In such a case, investors in our common stock could lose all or part of
their investment.
Prospective investors should consider
carefully whether an investment in the Company is suitable for them in light of the information contained in this prospectus and
the financial resources available to them. The risks described below do not purport to be all the risks to which the Company or
the Company could be exposed. This section is a summary of certain risks and is not set out in any particular order of priority.
They are the risks that we presently believe are material to the operations of the Company. Additional risks of which we are not
presently aware or which we presently deem immaterial may also impair the Company’s business, financial condition or results
of operations.
Risks Related to our Business and the
Industry in Which We Operate
We have a limited operating history
upon which investors can evaluate our business and future prospects.
We are an early stage company that has
not yet begun any commercial operations. Historically, we have been a shell company with no operating history and no assets other
than cash. Upon consummation of the Merger with Akoustis, we redirected our business focus towards the development of advanced
single crystal bulk acoustic wave filter products for RF front-ends for use in mobile wireless device industry. Although Akoustis
since its inception focused its activity on research and development (“R&D”) of high efficiency acoustic wave
resonator technology utilizing single crystal piezoelectric materials, this technology has not yet obtained marketing approval
or been verified in commercial manufacturing, and its RF filters have not generated any sales.
Since our potential customers and future
demand for our products are based on estimates of planned operations rather than experience, it is difficult for our management
and our investors to accurately forecast and evaluate our future prospects and our revenues. Our proposed operations are therefore
subject to all of the risks inherent in light of the expenses, difficulties, complications and delays frequently encountered in
connection with the formation of any new business, the development of a product, as well as those risks that are specific to our
business in particular. An investment in an early stage company such as ours involves a degree of risk, including the possibility
that entire investment may be lost. The risks include, but are not limited to, the possibility that following the Merger, we will
not be able to develop functional and scalable products, or that although functional and scalable, our products and/or services
will not be accepted in the market. To successfully introduce and market our products at a profit, we must establish brand name
recognition and competitive advantages for our products. There are no assurances that the Company can successfully address these
challenges. If it is unsuccessful, the Company and its business, financial condition and operating results will be materially
and adversely affected.
We may not generate revenues or
achieve profitability.
We have incurred operating losses since
our inception and expect to continue to have negative cash flow from operations. We have never generated any revenues; our only
income has been from R&D grants. We have experienced net losses of approximately $4.16 million for the period from May 12,
2014 (inception) to March 31, 2016. Our future profitability will depend on our ability to create a sustainable business model
and generate revenues, which is subject to a number of factors, including our ability to successfully implement our strategies
and execute our R&D plan, our ability to implement our improved design and cost reductions into manufacturing of our RF filters,
the availability of funding, market acceptance of our products, consumer demand for end products incorporating our products, our
ability to compete effectively in a crowded field, our ability to respond effectively to technological advances by timely introducing
our new technologies and products and global economic and political conditions.
Our future profitability also depends
on our expense levels, which are influenced by a number of factors, including the resources we devote to developing and supporting
our projects and potential products, the continued progress of our research and development of potential products, our ability
to improve research and development efficiencies, license fees or royalties we may be required to pay, and the potential need
to acquire licenses to new technology, the availability of intellectual property for licensing or acquisition, or to use our technology
in new markets, which could require us to pay unanticipated license fees and royalties in connection with these licenses.
Our development and commercialization
efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues to offset higher
expenses. These expenses, among other things, may cause our net income and working capital to decrease. If we fail to generate
revenue and manage our expenses, we may never achieve profitability, which would adversely and materially affect our ability to
provide a return to our investors
The industry and the markets in
which the Company operates are highly competitive and subject to rapid technological change.
The markets in which we intend to compete
are intensely competitive. We will operate primarily in the industry that designs and produces semiconductor components for wireless
communications and other wireless devices, which is subject to rapid changes in both product and process technologies based on
demand and evolving industry standards. The intended markets for our products are characterized by:
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rapid
technological developments and product evolution,
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rapid
changes in customer requirements,
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frequent
new product introductions and enhancements,
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continuous
demand for higher levels of integration, decreased size and decreased power consumption,
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short
product life cycles with declining prices over the life cycle of the product, and
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evolving
industry standards.
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The continuous evolutions of these technologies
and frequent introduction of new products and enhancements have generally resulted in short product life cycles for wireless semiconductor
products, in general, and for RF front-end products, in particular. Our products could become obsolete or less competitive sooner
than anticipated because of a faster than anticipated change in one or more of the above-noted factors. Therefore, in order for
our RF filters to be competitive and achieve market acceptance, we need to keep pace with rapid development of new process technologies,
which requires us to:
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respond
effectively to technological advances by timely introducing our new technologies and
products,
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successfully
implement our strategies and execute our R&D plan in practice,
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improve
the efficiency of our technology,
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implement
our improved design and cost reductions into manufacturing of our RF filters.
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Our products may not be accepted
in the market.
Although we believe that our Bulk ONE
acoustic wave resonator technology that utilizes single crystal piezoelectric materials will provide material advantages over
existing RF filters and are currently developing various methods of integration suitable for implementation of this technology
to RF filters, we cannot be certain that our RF filters will be able to achieve or maintain market acceptance. While we have fabricated
R&D resonators that demonstrate the feasibility of our Bulk ONE technology, we are still in the process of transitioning this
technology into a production-capable wafer fabrication facility for manufacturing of our RF filters, and this technology is not
verified yet in practice or on a commercial scale. There are also no records that can demonstrate our ability to successfully
overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields. In addition
to our limited operating history, we will depend on a limited number of manufacturers and customers for a significant portion
of our revenue in the future. Each of these factors may adversely affect our ability to implement our business strategy and achieve
our business goals.
The successful development of our Bulk
ONE technology following the Merger and market acceptance of our RF filters will be highly complex and will depend on the following
principal competitive factors, including our ability to:
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comply
with industry standards and effectively compete against current technology for producing
RF acoustic wave filters,
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differentiate
our products from offerings of our competitors by delivering RF filters that are higher
in quality, reliability and technical performance,
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anticipate
customer and market requirements, changes in technology and industry standards and timely
develop improved technologies that meet high levels of satisfaction of our potential
customers,
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maintain,
grow and manage our internal teams to the extent we increase our operations and develop
new segments of our business,
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develop
and maintain successful collaboration, strategic, and other relationships with manufacturers,
customers and contractors,
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protect,
develop or otherwise obtain adequate intellectual property for our technology and our
filters; and
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obtain
strong financial, sales, marketing, technical and other resources necessary to develop,
test, manufacture, commercialize and market our filters.
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If we are unsuccessful in accomplishing
these objectives, we may not be able to compete successfully against current and potential competitors. As a result, our Bulk
ONE technology and our RF filters may not be accepted in the market and we may never attain profitability.
We will face intense competition,
which may cause pricing pressures, decreased gross margins and loss of market share and may materially and adversely affect our
business, financial condition and results of operations.
We will compete with U.S. and international
semiconductor manufacturers and fabless mobile semiconductor companies of all sizes in terms of resources and market share, some
of whom have significantly greater financial, technical, manufacturing and marketing resources than we do. We expect competition
in our markets to intensify, as new competitors enter the RF component market, existing competitors merge or form alliances, and
new technologies emerge. Our competitors may introduce new solutions and technologies that are superior to our BAW technology,
are verified on a commercial scale, and have achieved widespread market acceptance. Certain of our competitors may be able to
adapt more quickly than we can to new or emerging technologies and changes in customer requirements or may be able to devote greater
resources to the development, promotion and sale of their products than we can. This implementation may require us to modify the
manufacturing process for our filters, design new products to more stringent standards, and redesign some existing products, which
may prove difficult for us and result in delays in product deliveries and increased expenses.
Increased competition could also result
in pricing pressures, declining average selling prices for our RF filters, decreased gross margins and loss of market share. We
will need to make substantial investments to develop these enhancements and technologies, and we cannot assure investors that
we will have funds available for these investments or that these enhancements and technologies will be successful. If a competing
technology emerges that is, or is perceived to be, superior to our existing technology and we are unable to adapt to these changes
and to compete effectively, our market share and financial condition could be materially and adversely affected, and our business,
revenue, and results of operations could be harmed.
Changes in general economic conditions,
together with other factors, cause significant upturns and downturns in the industry, and our business, therefore, may also experience
cyclical fluctuations in the future.
From time to time, changes in general
economic conditions, together with other factors, may cause significant upturns and downturns in the semiconductor industry. These
fluctuations are due to a number of factors, many of which are beyond our control:
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levels
of inventory in our end markets,
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availability
and cost of supply for manufacturing of our RF filters using our design,
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changes
in end-user demand for the products manufactured with our technology and sold by our
prospective customers,
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industry
production capacity levels and fluctuations in industry manufacturing yields,
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market
acceptance of our future customers’ products that incorporate our RF filters,
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the
gain or loss of significant customers,
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the
effects of competitive pricing pressures, including decreases in average selling prices
of our RF filters,
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new
product and technology introductions by competitors,
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changes
in the mix of products produced and sold, and
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intellectual
property disputes.
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As a result, the demand for our products
can change quickly and in ways we may not anticipate, and our business, therefore, may also experience cyclical fluctuations in
the future operating results. In addition, future downturns in the electronic systems industry could adversely impact our revenue
and harm our business, financial condition and results of operations.
If we are unable to attract and
retain qualified personnel to contribute to the development, manufacture and sale of our products, we may not be able to effectively
operate our business.
As the source of our technological and
product innovations, our key technical personnel represent a significant asset. We believe that our future success is highly dependent
on the continued services of our current key officers, employees, and Board members, as well as our ability to attract and retain
highly skilled and experienced technical personnel. The loss of their services could have a detrimental effect on our operations.
Specifically, the loss of the services of Jeffrey Shealy, our President and CEO, Prof. Steve DenBaars, our director, Mark Boomgarden,
our Vice President of Operations, David Aichele, our Vice President of Business Development, Prof. James Shealy, the Chair of
our Scientific Advisor Board, Cindy Payne, our Chief Financial Officer, Richard Ogawa, our Patent Counsel, any major change in
our Board or management, or our inability to attract, retain and motivate qualified personnel could have a material adverse effect
on our ability to operate our business. The competition for management and technical personnel is intense in the wireless semiconductor
industry, and therefore we cannot assure you that we will be able to attract and retain qualified management and other personnel
necessary for the design, development, manufacture and sale of our products.
We expect to substantially rely
on third parties to manufacture our RF filters.
We employ a “fabless” business
strategy, meaning that we do not own a semiconductor fabrication facility, or fab, and do not currently have, nor do we plan to
acquire, the infrastructure or capability internally, such as our own manufacturing facilities, to manufacture our wafers and
our filters for use in the conduct of commercial quantities. Instead, we leverage capital investments and capacity of manufacturers
to fabricate our wafers. Therefore, success of implementation of our single-crystal BAW technology for manufacturing our RF filters
and its commercial production will substantially depend upon our ability to develop, maintain and expand our strategic relationships
with manufacturers that will fabricate wafers using our design and incorporate them into their products. Any impairment in our
relationship with these manufacturers could have a material adverse effect on our business, results of operations, cash flow and
financial condition. Although we have entered into a joint development agreement and a foundry agreement with Global Communication
Semiconductors, LLC (“GCS”), and may explore other plans to enter into agreements with more manufacturers, to fabricate
our RF filters for R&D and for commercial sales, there can be no assurance that we will be able to retain those relationships
on commercially reasonable terms, if at all. Since we expect to depend upon one or a limited number of these manufacturers for
a signification portion of our revenue in the future, we could experience delays in the launch and commercial productions of our
RF filters if we are unable to maintain those relationships.
Reliance on a limited number of manufacturers
also may expose us to the following risks:
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We
may be unable to identify manufacturers on acceptable terms, or at all, because the number
of potential manufacturers is limited. In addition, a new manufacturer would have to
be educated in, or develop substantially equivalent processes for manufacturing of our
wafers.
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Our
manufacturers might be unable to formulate and manufacture wafers in the volume and of
the quality required to meet demands of our R&D and commercial needs.
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Our
future manufacturers may not perform as contractually agreed or may not remain in the
manufacturing business for the time required to successfully produce, store and distribute
our products.
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Since
our filters are not sold directly to the end-user, but are components of other products,
we highly depend upon selection of our design and technology by these manufacturers from
among alternative offerings and including and incorporating our filters into their final
product.
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Each of these risks could delay the commercialization
of our RF filters and its market acceptance or result in higher costs or deprive us of potential product revenues.
We rely on our independent contractors
in adequately performing their contractual obligations, meeting expected deadlines and applicable regulatory requirements
We depend on our independent contractors
to adequately perform a substantial part of our projects and successfully carry their contractual duties and obligations. However,
these contractors may not assign as a great priority a process of developing of our technology in accordance with our levels of
quality control or meet expected deadlines, may not devote sufficient time to develop our technology, or may not pursue their
contractual obligations as diligently as we would if we were undertaking such activities ourselves. They may also establish relationships
with other commercial entities, some of whom may compete with us. If our contractors assist our competitors to our detriment,
our competitive position would be harmed. If our independent contractors fail to perform their contractual duties at acceptable
quality levels or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the data they obtain
is compromised due to a failure to adhere to our protocols, legal and regulatory requirements or for other reasons, the development
and commercialization of our filters could be stopped, delayed, or made less profitable. As a result, our operations and the commercial
prospects for marketing of our RF filters would be harmed, our costs could increase, and our ability to generate revenues could
be delayed.
Product defects could adversely
affect the results of our operations and may expose us to product liability claims.
The fabrication of the RF filters is a
complex and precise process. While we intend to supply design and to monitor fabrication of our RF filters by our manufacturers,
we may not be able to monitor their quality control, their quality assurance and their qualified personnel. If any of our manufacturers
fail to successfully manufacture wafers that conform to our design specifications and the strict regulatory requirements of the
Federal Communications Commission (“FCC”), it may result in substantial risk of undetected flaws in components or
other materials used by our manufacturers during fabrication of our filters and could lead to product defects and costs to repair
or replace these parts or materials. Any such failure by our manufacturers would significantly impact our ability to develop and
implement our technology and to improve performance of our RF filters. Our inability to timely find a substitute manufacturer
that can comply with such requirements could result in significant costs, as well as negative publicity and damage to our reputation
that could reduce demand for our products.
We also could be subject to product liability
lawsuits if the wireless devices containing our RF filters cause injury. Recently interest groups have requested that the FCC
investigate claims that wireless communications technologies pose health concerns and cause interference with airbags, hearing
aids and medical devices. Any such product liability claims may include allegations of defects in manufacturing, defects in design,
a failure to warn of dangers inherent in the product or inadequate disclosure of risks related to the use of our product, negligence,
strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts.
If we are unable to establish effective
marketing and sales capabilities or enter into agreements with third parties to market and sell our RF filters, we may not be
able to effectively generate product revenues.
We have no experience selling, marketing
or distributing products and currently have no internal marketing and sales force. In order to launch and commercialize our technology
and our RF filters, we must build on a territory-by-territory basis marketing, sales, distribution, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. Therefore,
we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales
forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our
own sales force and distribution systems. If so, our success will depend, in part, on our ability to enter into and maintain collaborative
relationships for such capabilities, such collaborator’s strategic interest in the products under development and such collaborator’s
ability to successfully market and sell any such products.
If we are unable to enter into such arrangements
when needed on acceptable terms or at all, we may not be able to successfully commercialize our filters. Further, to the extent
that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third
parties, and there can be no assurance that such efforts will be successful. If we decide in the future to establish an internal
sales and marketing team with technical expertise and supporting distribution capabilities to commercialize our RF filters, it
could be expensive and time consuming and would require significant attention of our executive officers to manage. We may also
not have sufficient resources to allocate to the sales and marketing of our filters. Any failure or delay in the development of
sales, marketing and distribution capabilities, either through collaboration with one or more third parties or through internal
efforts, would adversely impact the commercialization of any of our products that we obtain approval to market. As a result, our
future product revenue would suffer and we may incur significant additional losses.
Risks Related to Our Intellectual Property
If we fail to obtain, maintain and
enforce our intellectual property rights, we may not be able to prevent third parties from using our proprietary technologies
and may lose access to technologies critical to our products.
Our long-term success largely depends
on our ability to market technologically competitive products which, in turn, largely depends on our ability to obtain and maintain
adequate intellectual property protection and to enforce our proprietary rights without infringing the proprietary rights of third
parties. While we rely upon a combination of our patent applications currently pending with the United State Patent and Trademark
Office (“USPTO”), our trademarks, copyrights, trade secret protection and confidentiality agreements to protect the
intellectual property related to our technologies, there can be no assurance that
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our
currently pending or future patent applications will result in issued patents,
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our
limited patent portfolio will provide adequate protection to our core technology,
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we
will succeed in protecting our technology adequately in all key jurisdictions, or
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we
can prevent third parties from disclosure or misappropriation of our proprietary information
which could enable competitors to quickly duplicate or surpass our technological achievements,
thus eroding any competitive advantage we may derive from the proprietary information.
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We have a limited number of patent
applications which may not result in issued patents.
In the United States, we have seven pending
patent applications, one filing for which claims have been allowed and one filing that was published on June 7, 2016; however,
there is no assurance that any of the pending applications or our future patent applications will result in patents being issued,
or that any patents that may be issued as a result of existing or future applications will provide meaningful protection or commercial
advantage to us.
The process of seeking patent protection
in the United States and abroad can be long and expensive. Since patent applications in the United States and most other countries
are confidential for a period of time after filing, we cannot be certain at the time of filing that we are the first to file any
patent application related to our single crystal acoustic wave filter technology. In addition, patent applications are often published
as part of the patent application process, even if such applications do not issue as patents. When published, such applications
will become publicly available, and proprietary information disclosed in the application will become available to others. While
at present we are unaware of competing patent applications, competing applications could potentially surface.
Even if all of our pending patent applications
are granted and result in registration of our patents, we cannot predict the breadth of claims that may be allowed or enforced,
or that the scope of any patent rights could provide a sufficient degree of protection that could permit us to gain or keep our
competitive advantage with respect to these products and technologies. For example, we cannot predict:
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the
degree and range of protection any patents will afford us against competitors, including
whether third parties will find ways to make, use, sell, offer to sell or import competitive
products without infringing our patents;
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if
and when patents will be issued;
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if
third parties will obtain patents claiming inventions similar to those covered by our
patents and patent applications;
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if
third parties have blocking patents that could be used to prevent us from marketing our
own patented products and practicing our own technology; or
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whether
we will need to initiate litigation or administrative proceedings (e.g. at the USPTO)
in connection with patent rights, which may be costly whether we win or lose.
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As a result, the patent applications we
own may fail to result in issued patents in the United States. Third parties may challenge the validity, enforceability or scope
of any issued patents or issued to us in the future, which may result in those patents being narrowed, invalidated or held unenforceable.
Even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent
others from developing similar products that do not infringe the claims made in our patents. If the breadth or strength of protection
provided by the patents we hold or pursue is threatened, we may not be able to prevent others from offering similar technology
and products in the RF front-ends mobile market and our ability to commercialize our RF filters with technology protected by those
patents could be threatened.
We have three pending patent applications
and an additional three patent applications which have been issued outside of the United States. The three issued applications
entered the divisional process and are anticipated to result in up to six granted patents outside of the United States. However,
our pending patent applications may fail to result in issued patents outside of the United States which may significantly limit
our ability to prevent misappropriation of our proprietary information or infringement of our intellectual property rights in
countries outside of the United States where our filters may be sold in the future. If we file foreign patent applications related
to our pending U.S. patent applications or to our issued patents in the United States, if any, these applications may be contested
and fail to result in issued patents outside of the United States or we will be required to narrow our claims. Even if some or
all of our patent applications are granted outside of the United States and resulted in the issued patents, effective enforcement
of rights granted by these patents in some countries may not be available due to the differences in foreign patent and other laws
concerning intellectual property rights, a relatively weak legal regime protecting intellectual property rights in these countries,
and because it is difficult, expensive and time-consuming to police unauthorized use of our intellectual property when infringers
are overseas. This failure to obtain or maintain adequate protection of our intellectual property rights outside of the United
States could have a materially adverse effect on our business, results of operations and financial conditions.
We may be involved in lawsuits to
protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or
the patents of our potential licensors. To attempt to stop infringement or unauthorized use, we may need to file infringement
claims, which can be expensive and time consuming and distract management.
If we pursue any infringement proceeding,
a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party
from using the relevant technology on the grounds that our patents do not cover the technology in question. Additionally, any
enforcement of our patents may provoke third parties to assert counterclaims against us. Some of our current and potential competitors
have the ability to dedicate substantially greater resources to enforcing their intellectual property rights than we have. Moreover,
the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, which
could reduce the likelihood of success of, or the amount of damages that could be awarded resulting from, any infringement proceeding
we pursue in any such jurisdiction. To date, we have not filed any patent applications in jurisdictions other than the United
States. An adverse result in any infringement litigation or defense proceedings could put one or more of our patents at risk of
being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing, which
could limit the ability of our filters to compete in those jurisdictions.
Interference proceedings provoked by third
parties or brought by the USPTO to determine the priority of inventions with respect to our patents or patent applications. An
unfavorable outcome could require us to cease using the related technology or to attempt to license rights to use it from the
prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable
terms, or at all.
We need to protect our trademark
rights and disclosure of our trade secrets to prevent competitors taking advantage of our goodwill.
We believe that the protection of our
trademark rights is an important factor in product recognition, protecting our brand, maintaining goodwill, and maintaining or
increasing market share. We currently have two trademarks that we have filed to register with USPTO, the Akoustis™ and Bulk
ONE™ marks, and may expend substantial cost and effort in an attempt to register new trademarks and maintain and enforce
our trademark rights. If we do not adequately protect our rights in our trademarks from infringement, any goodwill that we have
developed in those trademarks could be lost or impaired.
Third parties may claim that the sale
or promotion of our products, when and if we have any, may infringe on the trademark rights of others. Trademark infringement
problems occur frequently in connection with the sale and marketing of products in the RFFE mobile industry. If we become involved
in any dispute regarding our trademark rights, regardless of whether we prevail, we could be required to engage in costly, distracting
and time-consuming litigation that could harm our business. If the trademarks we use are found to infringe upon the trademark
of another company, we could be liable for damages and be forced to stop using those trademarks, and as result, we could lose
all the goodwill that has been developed in those trademarks.
In addition to the protection afforded
by patents and trademarks, we seek to rely on copyright, trade secret protection and confidentiality agreements to protect proprietary
know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our processes
that involve proprietary know-how, information or technology that is not covered by patents. For Akoustis, this includes particularly
chip layouts, circuit designs, resonator layouts and implementation, and membrane definition. Although we require all of our employees
and certain consultants and advisors to assign inventions to us, and all of our employees, consultants, advisors and any third
parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, our trade
secrets and other proprietary information may be disclosed or competitors may otherwise gain access to such information or independently
develop substantially equivalent information. If we are unable to prevent material disclosure of the intellectual property related
to our technologies to third parties, we will not be able to establish or maintain the competitive advantage that we believe is
provided by such intellectual property, which would weaken our competitive market position, and materially adversely affect our
business and operational results.
Development of certain technologies
with our manufacturers may result in restrictions on jointly-developed intellectual property.
In order to maintain and expand our strategic
relationship with manufacturers of our filters, we may, from time to time, develop certain technologies jointly with these manufacturers
and file for further intellectual property protection and/or seek to commercialize such technologies. We entered into the Joint
Development Agreement with GCS and may enter in the future into joint development agreements with other manufacturers which provide(s)
for the joint development works and joint intellectual property rights by us and by such manufacturer. Such agreements may restrict
our commercial use of such intellectual property, or may require written consent from, or a separate agreement with, that manufacturer.
In other cases, we may not have any rights to use intellectual property solely developed and owned by such manufacturer or another
third party. If we cannot obtain commercial use rights for such jointly-owned intellectual property or intellectual property solely
owned by these manufacturers, our future product development and commercialization plans may be adversely affected.
We may be 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 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 infringe, misappropriate
or otherwise misuse 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:
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pay
substantial damages, including treble damages if we were held to have willfully infringed;
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cease
the manufacture, offering for sale or sale of the infringing technology or processes;
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expend
significant resources to develop non-infringing technology or processes;
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obtain
a license from a third party, which may not be available on commercially reasonable terms,
or may not be available at all; or
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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.
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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.
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 a 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 dates 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.
Risks Related to our Financial Condition
We have a history of losses, will
need substantial additional funding to continue our operations and may not achieve or sustain profitability in the future.
Our operations have consumed substantial
amounts of cash since inception. We have incurred losses since our incorporation and formation in 2014. Although we are applying
for substantial additional grants in the calendar year 2016 and 2017 that we believe we are likely to be awarded, and we are launching
a sales channel for non-resonator catalog parts in 2016, both of which are expected to provide cash flows to help support the
development and commercialization of our resonator technology, we do not expect meaningful revenues from our resonator technology
until at least the second half of the calendar year 2017. If our forecasts for the Company prove incorrect, the business, operating
results and financial condition of the Company will be materially and adversely affected. We anticipate that our operating expenses
will increase in the foreseeable future as we continue to pursue the development of our patent-pending single crystal acoustic
wave filter technology, invest in marketing, sales and distribution of our RF filters to grow our business, acquire customers,
commercialize our technology in the mobile wireless market. These efforts may prove more expensive than we currently anticipate,
and we may not succeed in generating sufficient revenues to offset these higher expenses. In addition, we expect to incur significant
expenses related to regulatory requirements, ability to obtain, protect, and defend our intellectual property rights.
We may also encounter unforeseen expenses,
difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our
cash resources faster than we expect. Accordingly, we will need to obtain substantial additional funding in order to continue
our operations.
To date, we have financed our operations
through a mix of investments from private investors, the incurrence of debt, and grant funding, and we expect to continue to utilize
such means of financing for the foreseeable future. Additional funding from those or other sources may not be available when or
in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible
into equity, it would result in dilution to our then existing stockholders, which could be significant depending on the price
at which we may be able to sell our securities. If we raise additional capital through the incurrence of indebtedness, we would
likely become subject to covenants restricting our business activities, and holders of debt instruments may have rights and privileges
senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities
could divert funds that would otherwise be available to support research and development, or commercialization activities. If
we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our R&D
programs for our acoustic wave filter technology or any future commercialization efforts. Any of these events could materially
and adversely affect our business, financial condition and prospects, and could cause our business to fail.
Our independent registered public
accounting firm has expressed doubt about our ability to continue as a going concern.
The Company’s historical financial
statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public
accounting firm has issued a report that included an explanatory paragraph referring to our recurring net losses and accumulated
deficit and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce
expenditures, and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result
from the outcome of this uncertainty. However, if adequate funds are not available to us when we need them, and we are unable
to commercialize our products giving us access to additional cash resources, we will be required to curtail our operations, which
would, in turn, further raise substantial doubt about our ability to continue as a going concern.
Risk Related to Managing Any Growth
We May Experience
We may engage in future acquisitions
that could disrupt our business, cause dilution to our shareholders and harm our financial condition and operating results.
While we currently have no specific plans
to acquire any other businesses, we may, in the future, make 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:
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issue
Common Stock or other forms of equity that would dilute our existing shareholders’
percentage of ownership,
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incur
debt and assume liabilities, and
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incur
amortization expenses related to intangible assets or incur large and immediate write-offs.
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We may not be able to complete acquisitions
on favorable terms, if at all. If we do complete an acquisition, we cannot assure you that it will ultimately strengthen our competitive
position or that it will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could
pose numerous additional risks to our expected operations, including:
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problems
integrating the purchased business, products or technologies,
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challenges
in achieving strategic objectives, cost savings and other anticipated benefits,
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increases
to our expenses,
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the
assumption of significant liabilities that exceed the limitations of any applicable indemnification
provisions or the financial resources of any indemnifying party,
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inability
to maintain relationships with prospective key customers, vendors and other business
partners of the acquired businesses,
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diversion
of management’s attention from their day-to-day responsibilities,
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difficulty
in maintaining controls, procedures and policies during the transition and integration,
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entrance
into marketplaces where we have no or limited prior experience and where competitors
have stronger marketplace positions,
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potential
loss of key employees, particularly those of the acquired entity, and
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that
historical financial information may not be representative or indicative of our results
as a combined company.
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Our business and operations would
suffer in the event of system failures, and our operations are vulnerable to interruption by natural disasters, terrorist activity,
power loss and other events beyond our control, the occurrence of which could materially harm our business.
Despite the implementation of security
measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses,
unauthorized access as well as telecommunication and electrical failures. While we have not experienced any such system failure,
accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result
in a material disruption of our R&D. If any disruption or security breach resulted in a loss of or damage to our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development
of our new technology for RF filters could be delayed.
We are also vulnerable to accidents, electrical
blackouts, labor strikes, terrorist activities, war and other natural disasters and other events beyond our control, and we have
not undertaken a systematic analysis of the potential consequences to our business as a result of any such events and do not have
an applicable recovery plan in place. We currently do not carry other business interruption insurance that would compensate us
for actual losses from interruptions of our business that may occur, and any losses or damages incurred by us could cause our
business to materially suffer.
Risks Related to Regulatory Requirements
Wireless communication industry
is subject to ongoing regulatory obligations and review. Maintaining compliance with these requirements may result in significant
additional expense to us, and any failure to maintain such compliance could cause our business to suffer.
Our business and products in development
are subject to regulation by various federal and state governmental agencies, including the radio frequency emission regulatory
activities of the FCC, the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of
the Department of Commerce, the product safety regulatory activities of the Consumer Products Safety Commission, the environmental
regulatory activities of the Environmental Protection Agency.
The rules and regulations of the FCC limit
the RF used by and level of power emitting from electronic equipment. Our RF filters, as a key element enabling consumer electronic
smartphone equipment, are required to comply with these FCC rules, and may require certification, verification or registration
of our RF filters with the FCC. Certification and verification of new equipment requires testing to ensure the equipment’s
compliance with the FCC’s rules. The equipment must be labeled according to the FCC’s rules to show compliance with
these rules. Testing, processing of the FCC’s equipment certificate or FCC registration and labeling may increase development
and production costs and could delay the implementation of our Bulk ONE acoustic wave resonator technology for our RF filters
and the launch and commercial productions of our filters into the U.S. market. Electronic equipment permitted or authorized to
be used by us through FCC certification or verification procedures must not cause harmful interference to licensed FCC users,
and may be subject to RF interference from licensed FCC users. Selling, leasing or importing non-compliant equipment is considered
a violation of FCC rules and federal law, and violators may be subject to an enforcement action by the FCC. Any failure to comply
with the applicable rules and regulations of the FCC could have an adverse effect on our business, operating results and financial
condition by increasing our compliance costs and/or limiting our sales in the United States.
The semiconductor and electronics industries
also have been subject to increasing environmental regulations. A number of domestic and foreign jurisdictions seek to restrict
the use of various substances, a number of which have been used in our products in development or processes. For example, the
European Union Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS) Directive now requires that certain
substances be removed from all electronics components. Removing such substances requires the expenditure of additional research
and development funds to seek alternative substances, as well as increased testing by third parties to ensure the quality of our
products and compliance with the RoHS Directive. While we have implemented a compliance program to ensure our product offering
meets these regulations, there may be instances where alternative substances will not be available or commercially feasible, or
may only be available from a single source, or may be significantly more expensive than their restricted counterparts. Additionally,
if we were found to be non-compliant with any such rule or regulation, we could be subject to fines, penalties and/or restrictions
imposed by government agencies that could adversely affect our operating results. Our cost to maintain compliance with existing
environmental regulations is expected to be nominal based on our business structure in which we outsource a majority of our operations
to suppliers that are responsible for meeting environmental regulations. We will continue to monitor our quality program and expand
as required to maintain compliance and ability to audit our supply chain.
Noncompliance with applicable regulations
or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of
profits, fines, damages, civil and criminal penalties, or injunctions. An adverse outcome in any such litigation could require
us to pay contractual damages, compensatory damages, punitive damages, attorneys’ fees and costs. These enforcement actions
could harm our business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do
not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be
materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s
attention and resources and an increase in professional fees.
There could be an adverse change
or increase in the laws and/or regulations governing our business.
We and our operating subsidiary are subject
to various laws and regulations in different jurisdictions, and the interpretation and enforcement of laws and regulations are
subject to change. We also will be subject to different tax regulations in each of the jurisdictions where we will conduct our
business or where our management or the management of our operating subsidiary is located. We expect that the scope and extent
of regulation in these jurisdictions, as well as regulatory oversight and supervision, will generally continue to increase. There
can be no assurance that future regulatory, judicial and legislative changes in any jurisdiction will not have a material adverse
effect on us or hinder us in the operation of its business. In addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and regulations applicable to us.
These current or future laws and regulations
may impair our research, development or production efforts or impact the research activities we pursue. Our failure to comply
with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could cause our financial
condition to suffer.
Investment Risks
You could lose all of your investment.
An investment in our securities is speculative
and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go
down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect
its underlying value. You could lose your entire investment.
You may experience dilution of your
ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that
are convertible into or exercisable for our common or preferred stock.
In the future, we may issue our authorized
but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and
the purchasers of our Common Stock offered hereby. The Company is authorized to issue an aggregate of 300,000,000 shares of Common
Stock and 10,000,000 shares of “blank check” preferred stock. We may issue additional shares of our Common Stock or
other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees,
future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance
of any such additional shares of our Common Stock may create downward pressure on the trading price of the Common Stock. We will
need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will
not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital
raising efforts, including at a price (or exercise prices) below the price you paid for your stock.
The ability of our Board of Directors
to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.
Our Board of Directors will be authorized
to issue up to 10,000,000 shares of preferred stock with powers, rights and preferences designated by it. Shares of voting or
convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or
to frustrate persons seeking to effect a takeover or otherwise gain control of the Company. The ability of the Board to issue
such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party
to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits
that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender
offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares
of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent managers and
directors from office even if such change were to be favorable to stockholders generally.
There currently is a limited market for our Common Stock
and there can be no assurance that an active public market will ever develop. Failure to develop or maintain an active trading
market could negatively affect the value of our Common Stock and make it difficult or impossible for you to sell your shares.
There is currently only a very limited
public market for shares of our Common Stock, and an active trading market may never develop. Our Common Stock is quoted on the
OTC Markets. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some
investors may have more experience. We may not ever be able to satisfy the listing requirements for our Common Stock to be listed
on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which
may delay or prevent the listing of our Common Stock on a more widely-traded and liquid market include the following: our stockholders’
equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may
be too low; our Common Stock may not be sufficiently widely held; we may not be able to secure market makers for our Common Stock;
and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our Common Stock listed.
Should we fail to satisfy the initial listing standards of the national exchanges, or our Common Stock is otherwise rejected for
listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our Common Stock could
suffer and the trading market for our Common Stock may be less liquid and our common stock price may be subject to increased volatility.
Our Common Stock is subject to the
“penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the
stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes
the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price
of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions
in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account
for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives
of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the
person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks.
The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which,
in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms
that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers
may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our Common Stock.
Disclosure also has to be made about the
risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both
the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks.
Our stock may be traded infrequently
and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.
Until our Common stock is listed on a
national securities exchange such as the New York Stock Exchange or the Nasdaq Stock Market, we expect our Common Stock to remain
eligible for quotation on the OTC Markets, or on another over-the-counter quotation system, or in the “pink sheets.”
In those venues, however, the shares of our Common Stock may trade infrequently and in low volumes, meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent.
An investor may find it difficult to obtain accurate quotations as to the market value of our Common Stock or to sell his or her
shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements
would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors.
Consequently, such regulations may deter broker-dealers from recommending or selling our Common Stock, which may further affect
the liquidity of our Common Stock. This would also make it more difficult for us to raise capital.
We do not anticipate paying dividends
on our Common Stock, and investors may lose the entire amount of their investment.
Cash dividends have never been declared
or paid on our Common Stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use
future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares
of Common Stock. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only
occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their
shares, nor can we assure that stockholders will not lose the entire amount of their investment.
We are an emerging growth company
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock
less attractive to investors.
We are an emerging growth company under
the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of
holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved,
exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption
from any requirement that may be adopted by the Public Company Accounting Oversight Board. If we do, the information that we provide
stockholders may be different than what is available with respect to other public companies. We cannot predict if investors will
find our Common Stock less attractive because we will rely on these exemptions. If some investors find our Common Stock less attractive
as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have
irrevocably elected to take advantage of this extended transition period. Since we will not be required to comply with new or
revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies,
our financial statements may not be comparable to the financial statements of companies that comply with the effective dates of
those accounting standards.
We will remain an emerging growth company
until the earliest of (1) the end of the fiscal year in which the market value of our Common Stock that is held by non-affiliates
exceeds $700 million as of the end of the second fiscal quarter, (2) the end of the fiscal year in which we have total annual
gross revenues of $1 billion or more during such fiscal year, (3) the date on which we issue more than $1 billion in non-convertible
debt in a three-year period or (4) March 31, 2020, the end of the fiscal year following the fifth anniversary of the date of the
first sale of our common stock pursuant to an effective registration statement filed under the Securities Act. Decreased disclosures
in our SEC filings due to our status as an “emerging growth company” may make it harder for investors to analyze our
results of operations and financial prospects.
Even after we no longer qualify as an
emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage
of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this
prospectus and our periodic reports and proxy statements. Some investors may find our Common Stock less attractive because we
rely on these exemptions, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
Being a public company is expensive
and administratively burdensome.
As a public reporting company, we are
subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws,
rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations
requires the time and attention of our Board of Directors and management, and increases our expenses. Among other things, we are
required to:
|
·
|
maintain
and evaluate a system of internal controls over financial reporting in compliance with
the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations
of the SEC and the Public Company Accounting Oversight Board;
|
|
·
|
maintain
policies relating to disclosure controls and procedures;
|
|
·
|
prepare
and distribute periodic reports in compliance with our obligations under federal securities
laws;
|
|
·
|
institute
a more comprehensive compliance function, including with respect to corporate governance;
and
|
|
·
|
involve,
to a greater degree, our outside legal counsel and accountants in the above activities.
|
The costs of preparing and filing annual
and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is expensive
and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire
additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory,
legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the
applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain
director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially
higher costs to obtain this coverage. These factors could also make it more difficult for us to attract and retain qualified executives
and members of our Board of Directors, particularly directors willing to serve on an audit committee which we expect to establish.
Any failure to maintain effective
internal control over our financial reporting could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of
2002 requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal
control over financial reporting. In addition, at such time, if any, as we are no longer a “smaller reporting company,”
our independent registered public accounting firm will have to attest to and report on management’s assessment of the effectiveness
of such internal control over financial reporting. Based upon the last evaluation conducted as of March 31, 2016, our management
concluded that our internal control over financial reporting was effective as of such date to ensure that information required
to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. In addition, management noted that the last evaluation of internal controls
over financial reporting in place as of March 31, 2016 indicated the controls to be effective.
Although our management concluded that
internal control over financial reporting was effective as of March 31, 2016, if we fail to maintain effective internal control,
we may be unable to prevent or detect fraud or provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements. This could result in a loss of investor confidence in the reliability of our financial
statements, which in turn could negatively affect the price of our Common Stock.
In particular, we must perform system and process evaluation and testing of our internal control over financial
reporting to allow management and (if required in future) our independent registered public accounting firm to report on the effectiveness
of our internal control over financial reporting, as required by Section 404(b). Our compliance with Section 404(b) may require
that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit
group or an audit committee composed of independent directors of the Board, and we will need to retain the services of additional
accounting and financial staff or consultants with appropriate public company experience and technical accounting knowledge to
satisfy the ongoing requirements of Section 404(b). We intend to review the effectiveness of our internal controls and procedures
and make any changes management determines appropriate, including to achieve compliance with Section 404(b) by the date on which
we are required to so comply.
***
The risks above do not necessarily
comprise all of those associated with an investment in the Company. This prospectus contains forward looking statements that involve
unknown risks, uncertainties and other factors that may cause the actual results, financial condition, performance or achievements
of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward
looking statements. Factors that might cause such a difference include, but are not limited to, those set out above.
SELLING STOCKHOLDERS
This prospectus covers the resale from
time to time by the selling stockholders identified in the table below of (a) up to 2,235,310 outstanding shares of common stock
sold to investors in our 2016 private placement offering of common stock (the “2016 Offering”), (b) up to 294,690 outstanding
shares of common stock held by certain other stockholders, and (c) up to 153,714 shares of common stock issuable upon exercise
of common stock purchase warrants issued to the placement agent in our 2016 Offering, and (d) up to 1,341,186 shares of common
stock which may become issuable pursuant to the price-protected anti-dilution provision (the “Anti-Dilution Provision”)
applicable to the 2,235,310 outstanding shares referenced in (a) above (See “Description of Business – The 2016 Offering”
for the terms of the anti-dilution provision).
The selling stockholders identified in
the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described
under the columns “Shares of common stock owned prior to this Offering and Registered hereby” and “Shares Issuable
Upon Exercise of Warrants owned Prior to this Offering and Registered hereby” in the table below. The table does not include
the up to 1,341,186 shares of common stock which may become issuable in connection with the Anti-Dilution Provision. The table
will be revised in the event that the Anti-Dilution Provision is triggered.
Certain selling stockholders may be deemed
to be “underwriters” as defined in the Securities Act. Any profits realized by such selling stockholder may be deemed
to be underwriting commissions.
The table below has been prepared based
upon the information furnished to us by the selling stockholders as of the date of this prospectus. The selling stockholders
identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information
in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities
Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will amend
or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that
will actually be held by the selling stockholders upon termination of this offering because the selling stockholders may offer
some or all of their common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The
total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read
the section entitled “Plan of Distribution” in this prospectus.
The following table sets forth the name
of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the
number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage
of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those
beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a
person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire
within 60 days after July 22, 2016 (the “Determination Date”), through the exercise of any option, warrant or right,
through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary
account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership
and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the
percentage of any other person.
Unless otherwise set forth below, based
upon the information furnished to us, (a) the persons and entities named in the table have sole voting and sole investment power
with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable,
(b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with
any of our predecessors or affiliates, and (c) no selling stockholder is a broker-dealer or an affiliate of a broker-dealer. Selling
stockholders who are broker-dealers or affiliates of broker-dealers are indicated by footnote. We have been advised that these
broker-dealers and affiliates of broker-dealers who hold shares of common stock included in the table below purchased our common
stock in the ordinary course of business, not for resale. These broker-dealers and affiliates of broker-dealers who hold warrants
to purchase shares of common stock included in the table below received such warrants as compensation to the placement agents in
the 2016 Offering. We have been advised that, in either case, at the time of such purchase of shares or receipt of warrants, such
persons did not have any agreements or understandings, directly or indirectly, with any person to distribute such common stock.
The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or
otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus
forms a part.
Selling
Stockholder
|
|
Shares
of
Common
Stock
Beneficially
Owned
Prior to this
Offering
|
|
|
Shares
of
common
stock owned
Prior to this
Offering and
Registered
hereby
|
|
|
Shares
issuable
upon Exercise
of Warrants
owned Prior to
this Offering
and Registered
hereby
|
|
|
Shares
of
Common
Stock
Beneficially
Owned
Upon
Completion of
this Offering
1
|
|
|
Percentage
of Common
Stock
Beneficially
Owned Upon
Completion
of
this
Offering
2
|
|
John L. Acierno III
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Agharta Capital Ltd.
|
|
|
15,625
|
|
|
|
15,625
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
David M. Aichele
3
|
|
|
116,250
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
110,000
|
|
|
|
*
|
|
Alex Partners, LLC
4
|
|
|
352,350
|
|
|
|
251,000
|
|
|
|
0
|
|
|
|
101,350
|
|
|
|
*
|
|
Phillip Alexander
5
|
|
|
8,210
|
|
|
|
7,810
|
|
|
|
0
|
|
|
|
400
|
|
|
|
*
|
|
Barclay Armitage
|
|
|
15,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
*
|
|
Axiom Capital Management, Inc.**
|
|
|
700
|
|
|
|
0
|
|
|
|
700
|
|
|
|
0
|
|
|
|
0
|
|
Peter Backus
|
|
|
161,600
|
|
|
|
65,000
|
|
|
|
0
|
|
|
|
96,600
|
|
|
|
*
|
|
Peter Bennett**
|
|
|
8,594
|
|
|
|
0
|
|
|
|
8,594
|
|
|
|
0
|
|
|
|
0
|
|
Jonathan and Gina Blatt,
JTWROS
6
|
|
|
32,500
|
|
|
|
12,500
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
*
|
|
David I. Blau
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Christopher J. and
Denise M. Blum, JTWROS
7
|
|
|
30,000
|
|
|
|
13,000
|
|
|
|
0
|
|
|
|
17,000
|
|
|
|
*
|
|
Mark D. Boomgarden
8
|
|
|
223,291
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
217,041
|
|
|
|
1.4
|
%
|
Ben Bowen**
|
|
|
8,594
|
|
|
|
0
|
|
|
|
8,594
|
|
|
|
0
|
|
|
|
0
|
|
Andrew Brenner
|
|
|
62,500
|
|
|
|
25,000
|
|
|
|
0
|
|
|
|
37,500
|
|
|
|
*
|
|
Brio Capital Master
Fund Ltd.
9
|
|
|
156,250
|
|
|
|
156,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Sloan C. Wilson
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Lee H. and Nancy M.
Corbin, JTWROS
10
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Kevin M. and Sara J.
Drehmer, JTWROS
11
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
40,000
|
|
|
|
*
|
|
EFD Capital Inc.**
|
|
|
6,440
|
|
|
|
0
|
|
|
|
6,440
|
|
|
|
0
|
|
|
|
0
|
|
F&M Star Alliance
Inc.
12
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
*
|
|
Arthur E. Geiss
13
|
|
|
44,306
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
34,306
|
|
|
|
*
|
|
Albert and Hiedi Gentile,
JTWROS
14
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Greenstone, LLC
15
|
|
|
460,082
|
|
|
|
31,250
|
|
|
|
0
|
|
|
|
428,832
|
|
|
|
2.8
|
%
|
Hare & Co LLC
16
|
|
|
625,000
|
|
|
|
625,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Daniel W. and Allaire
Hummel, JTWROS
17
|
|
|
34,000
|
|
|
|
17,000
|
|
|
|
0
|
|
|
|
17,000
|
|
|
|
*
|
|
Morgan Janssen**
|
|
|
1,500
|
|
|
|
0
|
|
|
|
1,500
|
|
|
|
0
|
|
|
|
0
|
|
Peter K. Janssen**
|
|
|
17,469
|
|
|
|
3,125
|
|
|
|
14,344
|
|
|
|
0
|
|
|
|
0
|
|
Peter W. Janssen
|
|
|
31,250
|
|
|
|
31,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
John S. Lemak
18
**
|
|
|
132,800
|
|
|
|
0
|
|
|
|
2,800
|
|
|
|
130,000
|
|
|
|
*
|
|
John S. Lemak IRA
Texas Capital Bank, Custodian
19
|
|
|
130,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
80,000
|
|
|
|
*
|
|
Robert Littera
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Martillo Finance Ltd.
20
|
|
|
142,500
|
|
|
|
62,500
|
|
|
|
0
|
|
|
|
80,000
|
|
|
|
*
|
|
Mark E and Jill K.
McDowell, JTWROS
21
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Thomas A. McGurk
|
|
|
17,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
12,000
|
|
|
|
*
|
|
Jeffrey McMahon
22
|
|
|
519,888
|
|
|
|
35,000
|
|
|
|
0
|
|
|
|
484,888
|
|
|
|
3.1
|
%
|
Monoc Capital Ltd.
23
|
|
|
15,625
|
|
|
|
15,625
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jerry D. Neal
24
|
|
|
135,000
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
*
|
|
Northland Securities,
Inc.
25
***
|
|
|
34,375
|
|
|
|
0
|
|
|
|
34,375
|
|
|
|
0
|
|
|
|
0
|
|
OPES EQUITIES INC.
26
|
|
|
4,690
|
|
|
|
4,690
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Cindy C. Payne
27
|
|
|
154,375
|
|
|
|
9,375
|
|
|
|
0
|
|
|
|
145,000
|
|
|
|
*
|
|
Jeff Peterson
28
**
|
|
|
51,563
|
|
|
|
0
|
|
|
|
17,188
|
|
|
|
34,375
|
|
|
|
0
|
|
Robert B. Prag
29
|
|
|
309,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
209,000
|
|
|
|
1.4
|
%
|
Stephen Renaud**
|
|
|
46,215
|
|
|
|
10,000
|
|
|
|
25,500
|
|
|
|
10,715
|
|
|
|
*
|
|
Daniel Salvas
|
|
|
65,625
|
|
|
|
15,625
|
|
|
|
0
|
|
|
|
50,000
|
|
|
|
*
|
|
Joseph Schump
|
|
|
18,750
|
|
|
|
18,750
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jeffrey Shealy
30
|
|
|
3,430,586
|
|
|
|
93,750
|
|
|
|
0
|
|
|
|
3,336,836
|
|
|
|
21.6
|
%
|
Lindsay B. Silverman
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Michael Silverman**
|
|
|
138,716
|
|
|
|
0
|
|
|
|
33,679
|
|
|
|
105,037
|
|
|
|
*
|
|
William N. Strawbridge
|
|
|
30,690
|
|
|
|
16,000
|
|
|
|
0
|
|
|
|
14,690
|
|
|
|
*
|
|
Clayton A. Struve
|
|
|
99,000
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
69,000
|
|
|
|
*
|
|
The Del Mar Consulting
Group, Inc.
31
|
|
|
174,000
|
|
|
|
174,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Thornaby Limited
32
|
|
|
51,667
|
|
|
|
35,000
|
|
|
|
0
|
|
|
|
16,667
|
|
|
|
*
|
|
Mark Tompkins
|
|
|
2,385,706
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
2,135,706
|
|
|
|
13.8
|
%
|
Vicap Ltd.
33
|
|
|
15,625
|
|
|
|
15,625
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
John V. Wagner, Jr.
|
|
|
36,000
|
|
|
|
16,000
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
*
|
|
Jeffrey Wilfong
|
|
|
64,000
|
|
|
|
36,000
|
|
|
|
0
|
|
|
|
28,000
|
|
|
|
*
|
|
Thomas Zahavi
|
|
|
89,700
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
69,700
|
|
|
|
*
|
|
Michael A. Zimmerman
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2,530,000
|
|
|
|
153,714
|
|
|
|
|
|
|
|
|
|
* Less than 1%
** Affiliate of registered broker-dealer
*** Registered broker-dealer
|
(1)
|
Assumes all of the shares of common stock to be registered on the registration statement of which
this prospectus is a part, including all shares of common stock underlying common stock purchase warrants held by the selling stockholders,
are sold in the offering and that shares of common stock beneficially owned by such selling stockholder but not being registered
by this prospectus (if any) are not sold.
|
|
(2)
|
Percentages are based on the 15,465,981 shares of common stock issued and outstanding as of
the Determination Date. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of common stock underlying shares of preferred stock, options
or warrants currently exercisable or convertible, or exercisable or convertible within 60 days after the Determination Date
are deemed outstanding for computing the percentage of the person holding such shares of preferred stock, options or warrants
but are not deemed outstanding for computing the percentage of any other person.
|
|
(3)
|
David M. Aichele is Vice President of Business Development of the Company.
|
|
(4)
|
Scott Wilfong is the President of Alex Partners, LLC and may be deemed to have voting and investment
power over the shares held thereby. Includes 116,000 shares issued to Alex Partners, LLC in connection with a consulting agreement
with the Company.
|
|
(5)
|
Includes shares held in a joint tenant account over which Phillip Alexander has equal voting and investment
power with his wife, Labinda B Alexander.
|
|
(6)
|
Jonathan and Gina Blatt are joint tenants with a right of survivorship and have equal voting and
investment power over shares held thereby.
|
|
(7)
|
Christopher and Denise Blum are joint tenants with a right of survivorship and have equal voting
and investment power over shares held thereby.
|
|
(8)
|
Mark D. Boomgarden is Vice President of Operations of the Company.
|
|
(9)
|
Shaye Hirsch is Director of Brio Capital Master Fund Ltd. and may be deemed to have voting and
investment control over the shares held thereby.
|
|
(10)
|
Lee and Nancy Corbin are joint tenants with a right of survivorship and have equal voting and investment
power over shares held thereby.
|
|
(11)
|
Kevin and Sara Drehmer are joint tenants with a right of survivorship and have equal voting and
investment power over shares held thereby.
|
|
(12)
|
Roman Ryzhkov is President of F&M Star Alliance Inc. and may be deemed to have voting and investment
power over the shares held thereby.
|
|
(13)
|
Includes 10,000 shares of Common Stock issuable upon exercise of an option that vested in May 2016
and is exercisable until May 22, 2025, but does not include 30,000 shares of Common Stock issuable upon exercise of an option that
vests in equal annual installments over three years commencing May 22, 2017, also exercisable until May 22, 2025. Arthur Geiss
is a Director of the Company and also provides consulting services to the Company via AEG Consulting LLC.
|
|
(14)
|
Albert and Hiedi Gentile are joint tenants with a right of survivorship and have equal voting and
investment power over shares held thereby.
|
|
(15)
|
David Ngo is the Managing Member of Greenstone, LLC and may be deemed to have voting and investment
power over the shares held thereby.
|
|
(16)
|
Katherine Potts is the Manager of Herald Investment Trust Plc, the beneficial owner of Hare &
Co LLC, and may be deemed to have voting and investment power over the shares held thereby.
|
|
(17)
|
Daniel and Allaire Hummel are joint tenants with a right of survivorship and have equal voting
and investment power over shares held thereby.
|
|
(18)
|
Includes shares held by John S. Lemak IRA Texas Capital Bank, Custodian.
|
|
(19)
|
John Lemak is the Trustee of John S. Lemak IRA and may be deemed to have voting and investment
power over the shares held thereby.
|
|
(20)
|
Alison Blackwood is Director of Martillo
Finance Ltd. and may be deemed to have voting and investment power over the shares held
thereby.
|
|
(21)
|
Mark and Jill McDowell are joint tenants with a right of survivorship and have equal voting and
investment power over the shares held thereby.
|
|
(22)
|
Includes 10,000 shares of Common Stock issuable upon exercise of an option that vested in May 2016
and is exercisable until May 22, 2025, but does not include 30,000 shares of Common Stock issuable upon exercise of an option that
vests in equal annual installments over three years commencing May 22, 2017, also exercisable until May 22, 2025. Jeffrey McMahon
is a Director of the Company.
|
|
(23)
|
Andrew Haughian is President of Monoc Capital Ltd. and may be deemed to have voting and investment
power over the shares held thereby.
|
|
(24)
|
Includes 10,000 shares of Common Stock issuable upon
exercise of an option that vested in May 2016 and is exercisable until May 22, 2025, but does not include 30,000 shares of Common
Stock issuable upon exercise of an option that vests in equal annual installments over three years commencing May 22, 2017, also
exercisable until May 22, 2025. Jerry Neal is a Director of the Company.
|
|
(25)
|
Jeffrey Peterson is the Head of Investment Banking at Northland Securities, Inc. and may be deemed
to have voting and investment control over the shares held thereby.
|
|
(26)
|
Ilario Licul is the President of OPES EQUITIES INC. and may be deemed to have voting and investment
power over the shares held thereby.
|
|
(27)
|
Cindy Payne is Chief Financial Officer of the Company.
|
|
(28)
|
Includes warrants issued to Northland Securities, Inc. over which Mr. Peterson has voting and investment
control.
|
|
(29)
|
Includes shares held by The Del Mar Consulting Group, Inc. over which Mr. Prag has voting and investment
control.
|
|
(30)
|
Jeffrey Shealy is Chief Executive Officer and a Director of the Company.
|
|
(31)
|
Robert Prag is the President of The Del Mar Consulting Group, Inc. and may be deemed to have voting
and investment power over the shares held thereby.
|
|
(32)
|
Nicholas Pitalugu is the Director of Trilex Limited, the Corporate Director of Thornaby Limited,
and may be deemed to have voting and investment power over the shares held thereby.
|
|
(33)
|
Chris Erickson is the Director of Vicap Ltd. and may be deemed to have voting and investment power
over the shares held thereby.
|
USE OF PROCEEDS
We will not receive proceeds from sales
of common stock made under this prospectus.
DETERMINATION
OF OFFERING PRICE
There currently is a limited public market
for our common stock. The selling stockholders will determine at what price they may sell the offered shares, and such sales may
be made at prevailing market prices or at privately negotiated prices. See “Plan of Distribution” below for more information.
MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Holders
Our Common Stock is currently eligible
for quotation and trades on the OTC Market (OTCQB) under the symbol “AKTS.” Prior to May 1, 2015, our Common Stock
was quoted under the symbol “DNLX.” Trading of our Common Stock began on May 28, 2015. There has been very limited
trading in our Common Stock to date.
As of July 22, 2016, we had 15,465,981
shares of our Common Stock issued and outstanding held by approximately 139 stockholders of record. To date, we have not paid dividends
on our Common Stock.
The following table sets forth the high
and low closing bid prices for our Common Stock for the fiscal quarter indicated as reported on OTC Markets. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our Common Stock
is very thinly traded and, thus, pricing of our Common Stock on OTC Markets does not necessarily represent its fair market value.
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2015 (from May 28, 2015)
|
|
$
|
7.00
|
|
|
$
|
3.00
|
|
Quarter ended September 30, 2015
|
|
|
5.00
|
|
|
|
2.75
|
|
Quarter ended December 31, 2015
|
|
|
4.15
|
|
|
|
1.55
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2016
|
|
|
2.00
|
|
|
|
1.50
|
|
Quarter ended June 30, 2016
|
|
|
4.40
|
|
|
|
1.90
|
|
Quarter ending September 30, 2016 (through July 22, 2016)
|
|
|
3.96
|
|
|
|
3.60
|
|
Dividends
We have never paid any cash dividends
on our capital stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend
to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant. Other than provisions of the Nevada Revised Statutes
requiring post-dividend solvency according to certain measures, there are no material restrictions limiting, or that are likely
to limit, our ability to pay dividends on our Common Stock.
Securities Authorized for Issuance
under Equity Compensation Plans
On May 22, 2015, our Board of Directors
adopted, and on the same date our stockholders approved, our 2015 Equity Incentive Plan (the “2015 Plan”), which reserves
a total of 1,200,000 shares of our Common Stock for issuance of awards. We agreed not to grant awards under the 2015 Plan for
more than 600,000 shares of our Common Stock during the first year following the closing of the Merger. If an incentive award
granted under the 2015 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection
with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards
under the 2015 Plan.
In addition, the number of shares of our
Common Stock subject to the 2015 Plan, any number of shares subject to any numerical limit in the 2015 Plan, and the number of
shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding our Common Stock
by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger,
consolidation, liquidation, business combination or exchange of shares or similar transaction.
The following table provides information
as of March 31, 2016, with respect to the shares of Common Stock that may be issued under our existing equity compensation plans:
Equity Compensation
Plan Information
Plan category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by
security holders (1)
|
|
|
160,000
|
|
|
$
|
1.50
|
|
|
|
600,800
|
|
Equity compensation plans not approved by security
holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
160,000
|
|
|
|
|
|
|
|
600,800
|
|
(1)
|
2015 Equity Incentive Plan
|
In addition to options, restricted stock
awards for a total of 439,200 shares of Common Stock were granted as of March 31, 2016 under the 2015 Plan. The restricted stock
awards are subject to a repurchase option in favor of the Company that lapses over periods of 3 to 4 years. See Note 10 to the
Consolidated Financial Statements included in this prospectus for more information.
Administration
The Board of Directors will administer
the 2015 Plan. Subject to the terms of the 2015 Plan, the Board has complete authority and discretion to determine the terms of
awards under the 2015 Plan.
Grants
The 2015 Plan authorizes the grant to
participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance
grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation
rights, as described below:
|
·
|
Options
granted under the 2015 Plan entitle the grantee, upon exercise, to purchase a specified
number of shares from us at a specified exercise price per share. The exercise price
for shares of our Common Stock covered by an option generally cannot be less than the
fair market value of our Common Stock on the date of grant unless agreed to otherwise
at the time of the grant. In addition, in the case of an incentive stock option granted
to an employee who, at the time the incentive stock option is granted, owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any parent
or subsidiary, the per share exercise price will be no less than 110% of the fair market
value of our Common Stock on the date of grant.
|
|
·
|
Restricted
stock awards and restricted stock units may be awarded on terms and conditions established
by the Board which may include performance conditions for restricted stock awards and
the lapse of restrictions on the achievement of one or more performance goals for restricted
stock units.
|
|
·
|
The
Board may make performance grants, each of which will contain performance goals for the
award, including the performance criteria, the target and maximum amounts payable, and
other terms and conditions.
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The
2015 Plan authorizes the granting of stock awards. The Board will establish the number
of shares of our Common Stock to be awarded and the terms applicable to each award, including
performance restrictions.
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Stock
appreciation rights (“SARs”) entitle the participant to receive a distribution
in an amount not to exceed the number of shares of our Common Stock subject to the portion
of the SAR exercised multiplied by the difference between the market price of a share
of our Common Stock on the date of exercise of the SAR and the market price of a share
of our Common Stock on the date of grant of the SAR.
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Duration, Amendment, and Termination
The Board has the power to amend, suspend
or terminate the EIP without stockholder approval or ratification at any time or from time to time. No change may be made that
increases the total number of shares of our Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum
exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders
within one year. Unless sooner terminated, the 2015 Plan would terminate ten years after it is adopted.
The form of the 2015 Plan is filed as
an exhibit to the registration statement of which this prospectus is a part.
Options and Warrants
See “Description of Securities”
below for information about our outstanding options and warrants to purchase Common Stock.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion
and analysis should be read in conjunction with the historical financial statements and the related notes thereto contained in
this prospectus. The management’s discussion and analysis contains forward-looking statements, such as statements of our
plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking
statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,”
“estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,”
“may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking
statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors”
in this prospectus that could cause actual results or events to differ materially from those expressed or implied by the forward-looking
statements. The Company’s actual results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking
statements to reflect events or circumstances occurring after the date of this prospectus.
As the result of the Merger and the change
in business and operations of the Company, a discussion of the past financial results of the Company prior to the Merger is not
pertinent, and under applicable accounting principles the historical financial results of Akoustis, Inc., the accounting acquirer,
prior to the Merger are considered the historical financial results of the Company.
The following discussion highlights the
results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital
resources for the periods described, and provides information that management believes is relevant for an assessment and understanding
of the statements of financial condition and results of operations presented herein. The following discussion and analysis are
based on the audited financial statements contained in this prospectus, which we have prepared in accordance with United States
generally accepted accounting principles. You should read the discussion and analysis together with such financial statements
and the related notes thereto.
Basis of Presentation
The audited financial statements for the
year ended March 31, 2016 and the period from May 12, 2014 (inception) through March 31, 2015 contained herein include a summary
of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management,
all material adjustments necessary to present fairly the results of operations for such periods have been included in these financial
statements.
Overview
Akoustis is an early-stage company that
designs and manufactures innovative radio frequency (RF) filters enabling the RF front-end (RFFE) of Mobile Wireless devices,
such as smartphones. 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. To construct the resonators that
are the building blocks for the RF filter, we have developed a fundamentally new single-crystal acoustic materials and device
technology that we refer to as Bulk ONE. 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 effective means of delivering our solutions to the market. Furthermore, our
technology is based upon bulk-mode resonance, which is superior to surface-mode resonance for high band applications and emerging
4G/LTE and WiFi frequency bands. While our target customers utilize or make the RFFE module, several customers lack access to
critical high band technology to compete in high band applications and other traditional surface-mode solutions where higher power
performance is required. We intend to design and manufacture our RF filter products to multiple mobile phone OEM customers and
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 have built prototype resonators using
our proprietary single crystal materials. We are currently optimizing our Bulk ONE technology to our wafer-manufacturing partner
under a joint development agreement (JDA) and a manufacturing agreement. We leverage both federal and state level, non-dilutive
research and development (“R&D”) grants to support development and commercialization of our technology. We are
developing resonators for 4G/LTE and WiFi bands and the associated proprietary models and design kits required to design our RF
filters. Once we have stabilized the wafer process technology, we plan to engage with strategic customers to evaluate first our
resonators and then our filter prototypes. Our initial designs will target high band 4G/LTE and WiFi frequency bands. Since Akoustis
owns its core technology and controls access to its IP, we can offer several ways to engage with potential customers. First, we
can engage with the mobile wireless market providing filters that we design and offer as a standard catalog component to multiple
customers. Second, we can start with a customer-supplied filter specification, which we design and fabricate for a specific customer.
Finally, we can offer our models and design kits for our customers to design their own filter into our proprietary technology. In
July 2014, the Company filed its first US patent applications on its Bulk ONE technology. We currently have seven pending patent
applications in the United States as well as one filing for which we have received official notification that claims have been
allowed and one additional that was officially published on June 7, 2016. In addition, outside the US we have three pending patent
applications and three utility patents awarded. The three awarded patents entered the divisional process and are anticipated to
result in up to 3 additional utility patents outside of the United States. The Company will continue to innovate and expand our
patent portfolio, and when appropriate, we will look to purchase license(s) that grant access to additional intellectual property
that further expands our technical capabilities and/or product offerings.
Akoustis, Inc. was founded on May 12,
2014. In June 2014, our founders and angel investors contributed $530,000 in a series-seed equity financing. Of the $530,000 raised
in June 2014, our CEO was the largest investor at $175,000. Furthermore, a firm owned by our CEO (Raytech, LLC) loaned our company
$30,000 to assist in purchase of test and measurement equipment required to evaluate the performance of our technology demonstrators.
The loan agreement was a 12-month simple interest note. The loan was repaid in full in March 2015.
In December 2014, Akoustis, Inc. was awarded
its first small business innovative research (“SBIR”) R&D grant with National Science Foundation (“NSF”).
The NSF program which increases the incentive and opportunity for startups and small businesses to undertake cutting-edge, high-quality
scientific research and development requires that the grantee have full responsibility for the conduct of the project or activity
supported and the adherence to the award conditions. The Phase I award, which was a one -year program for $150,000, was followed
by a Phase I NSF matching grant in the amount of $50,000 from the State of North Carolina. Subsequently, in May of 2015 Akoustis
was awarded the NSF/SBIR Phase Ib grant for an additional $30,000 and we were notified in February 2016 that we had been awarded
$738,000 for the NSF/SBIR Phase II grant, a two-year program in February 2016.
We expect to apply for additional R&D
grants that support technology innovation in line with our business plan. Our partnership with NSF has strengthened since the
start of our engagement and their support has accelerated our technology commercialization as well as funded technical jobs. We
have additional opportunities for new grants and matching funds from our current small business program partnership with NSF including
the Phase IIb award which has a potential award up to $500,000. We expect to receive notification of the Phase IIb award in late
fall or early winter of 2016. There can be no assurance, however, that these grants will be received.
On May 22, 2015, our wholly owned subsidiary,
Akoustis Acquisition Corp., a corporation formed in the State of Delaware on May 15, 2015 (“Acquisition Sub”) merged
with and into Akoustis, Inc. Akoustis, Inc., was the surviving corporation in the Merger and became our wholly owned subsidiary.
All of the outstanding stock of Akoustis, Inc., was exchanged for shares of our Common Stock. In connection with the Merger and
pursuant to a Split-Off Agreement, we transferred our pre-Merger assets and liabilities to our pre-Merger majority stockholder,
in exchange for the surrender by him and cancellation of 9,854,019 shares of our Common Stock.
We have earned no revenue from operations
since inception, and our operations have been funded with capital contributions, grants and debt. We have incurred losses totaling
approximately $4.16 million from inception through March 31, 2016. These losses are primarily the result of material and material
processing costs associated with developing and commercializing our technology as well as personnel costs combined with professional
fees, primarily accounting and legal, as well as costs for D&O insurance. 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 as well as 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 solutions that address problems (such as loss, bandwidth, power handling
and isolation) created by the growing number of frequency bands in the RFFE of mobile devices to support 4G/LTE and WiFi. First,
we plan to develop, by September 2016, a series of single-band low-loss BAW filter designs for 4G/LTE frequency bands, which are
dominated by higher loss BAW solutions and cannot be addressed with low band, lower power handling SAW technology. Second, we
plan to develop by February 2017 a series of filter solutions that can cover multiple frequency bands. In order to succeed, we
must convince mobile phone OEMs and RFFE module manufactures to use our Bulk ONE technology in their modules. However, since there
are only two dominant BAW filter suppliers in the industry that have high band technology, and both utilize such technology as
a competitive advantage at the module level, we expect customers that lack access to high band filter technology will be open
to engage with our pure-play filter company.
We have successfully transferred out Bulk
ONE wafer process to our manufacturing partner, GCS. The Bulk ONE process uses a range of single crystal group III-nitride piezoelectric
materials, which were fabricated into BAW resonators and characterized at cellular communication frequencies to determine their
bandwidth. On May 23, 2016, we announced an experimental, 3.4 GHz BAW two-port series-configured resonator device with a
high K-squared of 12.5% which was modeled near resonance frequency and was constructed from single crystal undoped aluminum nitride
(AlN) material. These resonators, which are the core building blocks enabling BAW RF filters, were fabricated using our
patented Bulk ONE process. Technology development efforts continue on wafer and process optimization, specifically, through targeted
activities for Q-factor improvements.
GCS has publicly communicated that an
offer to purchase their business was made by San'an, one of China's largest LED producers. GCS has communicated that they do not
anticipate any change in the status of the Torrance facility and if the transaction closes, the acquiring company may be able
to offer Akoustis additional high volume manufacturing capacity (HVM) in Asia to support our future growth in business. We continue
to process our wafer lots through GCS Torrance facility and continue to make technical progress on our technology. In parallel,
Management is evaluating alternative HVM options.
Once we complete customer validation of
our technology, we expect to complete qualification of our Bulk ONE process technology in the second half of 2016 to support a
product family of 4G/LTE filter solutions. Once the company has stabilized its process technology in a manufacturing environment,
we will target a March 2017 production release of our high band filter products in the frequency range from 1.5GHz to 4.0GHz.
The target frequency bands will be prioritized based upon customer priority. We expect this will require recruiting and hiring
additional personnel. While we have started discussions with several prospective customers for the design, such discussions are
ongoing and may not result in any agreements. We expect to proceed with our plan to develop a family of standard catalog filter
designs regardless of the outcome of these discussions.
We plan to pursue filter design and R&D
development agreements and potentially joint ventures with target customers and other strategic partners. These types of arrangements
may subsidize technology development costs and qualification, filter design costs, as well as offer complementary technology and
market intelligence and other avenues to revenue. However, we intend to retain ownership of our core technology, IP, designs and
related improvements. We expect to pursue development of catalog designs for multiple customers, and offer such catalog products
in multiple sales channels.
As of July 22, 2016 we have approximately
$4.0 million of cash and cash equivalents to fund a majority of the foregoing milestones, for product development to commercialize
our technology, research and development, the development of our patent strategy and expansion of our patent portfolio, as well
as for working capital and other general corporate purposes. These funds are expected to be sufficient to fund our activities through
March of 2017. However, there is no assurance that the Company’s projections and estimates are accurate. Our anticipated
costs include employee salaries and benefits, compensation paid to consultants, capital costs for research and other equipment,
costs associated with development activities including travel and administration, legal expenses, sales and marketing costs, general
and administrative expenses, and other costs associated with an early stage, publicly-traded technology company. We anticipate
increasing the number of employees to approximately 20 to 25 employees; however, this is highly dependent on the nature of our
development efforts and our success in commercialization. We anticipate adding employees for research and development, as well
as general and administrative functions, to support our efforts. We expect to incur consulting expenses related to technology development
and other efforts as well as legal and related expenses to protect our intellectual property. We expect capital expenditures to
be approximately $650,000 for the purchase of equipment and software during the next 12 months and are currently investigating
the feasibility of using government grants to purchase the equipment.
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, development and research, market
conditions, and changes in or revisions to our marketing strategies. In addition, we may use a portion of any net proceeds to
acquire complementary products, technologies or businesses; however, we do not have plans for any acquisitions at this time. We
have significant discretion in the use of the net proceeds.
Commercial development of new technology
is, by its nature, 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 as contemplated herein. If our current cash is insufficient for these purposes,
or the Company does not receive anticipated proceeds from research grants or such grant payments are delayed, or the Company experiences
costs in excess of estimates to continue its research and development plan, it is possible that the Company would not have sufficient
resources to continue as a going concern for the next year, and we will consider other options to continue our path to commercialization,
including, but not limited to, additional financing through follow-on stock offerings, debt financing, co-development agreements,
curtailment of operations, suspension of operations, sale or licensing of developed intellectual or other property, or other alternatives.
If we are unable to raise the funds that
we believe are needed to develop our technology and enable future sales, we may be required to scale back our development plans
by reducing expenditures for employees, consultants, business development and marketing efforts, and other envisioned expenditures.
This could reduce our ability to commercialize our technology or require us to seek further funding earlier, or on less favorable
terms, than if we had raised the full amount of the proposed offering.
We cannot assure you that our technology
will be accepted, that we will ever earn revenues sufficient to support our operations or that we will ever be profitable. Furthermore,
since we have no committed source of financing, we cannot assure you that we will be able to raise money as and when we need it
to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even
to cease, our operations.
Results of Operations
Research and Development expenses consist
of costs for technical and engineering personnel as well as other costs to develop and commercialize our technology including
materials, material processing, subcontractors, and travel by R&D personnel. Research and Development expenses were $1,222,194
for the year ended March 31, 2016 which was an increase of $977,559 or 399.6%, compared with $244,635 for the period of May 12,
2014 (inception) to March 31, 2015 (“FY 2015”). The increase was due to the ramp up of research and development activity
during the Company’s second year of operations. The increased expenditures occurred primarily in areas of R&D personnel
costs, stock based compensation, and material costs. Personnel costs increased by $469,310 versus $0 in the comparative period
due to the technical and engineering personnel hires made in Fiscal Year (“FY”) 2016, Stock based compensation increased
$124,389 over FY 2015 due to new restricted stock awards made to technical and engineering contractors and employees. In addition,
FY 2016 material costs of $478,858 were $289,560 or 152.9% higher than the comparative period due to the ramp up of material purchases
and material processing costs associated with product development activities.
General and Administrative costs include
salaries, wages and benefits for executive and general administrative staff, the costs associated with stock based compensation,
professional fees, insurance costs as well as other general costs associated with the administration of the business including
the cost of the facility. General and Administrative expenses for the year ended March 31, 2016 were $2,647,800 versus $339,214
for the period of May 12, 2014 (inception) to March 31, 2015. The year over year increase of $2,308,586 or 680.6% was associated
with officer and staff personnel costs of $1,057,880 which were higher by $852,096 or 441.1%, due to ramp up of headcount in the
Company’s second year of operations. In addition, we incurred professional fees of $550,300, associated with legal, accounting
and investor relations functions which were higher over the prior year by $505,757 or 1135.4%. Insurance expense, driven by the
cost of Directors and Officers (“D&O”) coverage, was higher year over year by $140,800 or 5620.8%. The increases
in both professional fees and D&O insurance were mainly due to the ongoing expense of the Company becoming publicly traded
in May 2015. Stock based compensation expense of $512,594 for FY 2016 was $509,077 or 14474.8% higher than FY 2015 as a result
of the full year effect of expense for agreements executed in FY 2015 as well as the expense associated with agreements executed
in FY 2016. FY 2016 travel expense of $128,253 also increased over the comparative period by $116,096 or 955% due to executive
travel to investor conferences and non-deal roadshows, travel associated with the Company going public in May of 2015 as well
as meetings with potential customers and strategic partners.
Other Income for FY 2016 totaled $159,167
versus $137,500 recorded in FY 2015, and included grant income of $264,333, which was higher year over year by $126,833 or 92.24%,
Grant Income was offset by the loss in fair value of derivatives of $106,994 on warrants issued in the 2015 Offering (as defined
under “Description of Business—The 2015 Offering” below) as a result of the change in stock price from the $1.50
to $2.11, the price per share on the balance sheet date.
The Company recorded a net loss of $3.71
million for the year ended March 31, 2016 as compared to the net loss of $446,349 recorded in FY 2015. The year over year incremental
loss of $3.26 million or 731.4% was driven by higher R&D personnel costs, and higher material costs due to the ramp up of
research and development activities in the Company’s second year of operation. Additionally, the Company experienced higher
year-over-year general and administrative costs for personnel due to the ramp up of support headcount, as well as increased insurance
costs and professional fees due to the Company becoming publicly traded in May 2015.
Liquidity and Capital Resources
Financing Activities
We have earned no revenue from operations
since inception, and our operations have been funded with the capital contributions, private placement of stock, grants and debt.
Akoustis, Inc. was founded on May 12,
2014. In June 2014, our founders and angel investors contributed $530,000 in a series-seed equity financing. Of the $530,000 raised
in June 2014, our CEO was the largest investor at $175,000. Furthermore, a firm owned by our CEO (Raytech, LLC) loaned our company
$30,000 to assist in purchase of test and measurement equipment required to evaluate the performance of our technology demonstrators.
The loan agreement was a 12-month simple interest note. The loan was repaid in full in March 2015.
In March 2015, Akoustis, Inc. issued convertible
notes in exchange for investments of $655,000 by the founders and original angel investors. Of this, $200,000 was invested by
our CEO. Also in March 2015 we executed a stock purchase agreement for $35,000 with an investor to offset legal and audit expenses
related to the Merger and private placement offering. In April 2015, one of the convertible noteholders converted $10,000 of his
convertible note into shares of Akoustis, Inc., Common Stock in order to enable us to qualify for additional matching funds from
NSF. As a result, the net note investment remaining was $645,000, which, in accordance with the terms of the convertible notes,
converted into Common Stock of the Company on the same terms as the other investors in the Company’s 2015 Offering referred
to below, at a conversion price of $1.50 per share.
On May 22, 2015, concurrently with the
closing of the Merger, and as a condition to the Merger, we held a closing on a private placement offering in which we sold 3,531,104
shares of our Common Stock, at a purchase price of $1.50 per share. On June 10, 2015, we completed a second and final closing
of the private placement offering in which we sold an additional 261,000 shares of Common Stock. In total, we sold an aggregate
of 3,792,104 shares of Common Stock. The aggregate gross proceeds from the offerings were $5,688,156 (before deducting placement
agent fees and offering expenses of $801,579). See “Description of Business—The 2015 Offering” for additional
information.
On March 10, 2016 and April 14, 2016 we
held closings of a private placement offering in which we sold in aggregate 2,235,310 shares of our Common Stock at a fixed purchase
price of $1.60 per share for aggregate gross proceeds of $3,576,469 before deducting expenses of the offering of $223,198. See
“Description of Business—The 2016 Offering” for additional information.
Since inception, we have received $401,833
in funds from NSF/SBIR grants and NC matching funds.
The Company estimates the $4.0 million
of cash on hand as of July 22, 2016 and the future receipts from NSF/SBIR grants already awarded will fund its operations through
March 31, 2017, As a result, we will need to raise additional capital, through the sale of additional equity securities, through
additional grants, or otherwise, to support our future operations. There is no assurance that the Company’s projections
and estimates are accurate. Although the Company is actively managing and controlling the Company’s cash outflows to
mitigate these risks, these matters raise substantial doubt about the Company’s ability to continue as a going concern.
Balance Sheet and Working Capital
We ended fiscal 2016 with current assets
of $2.8 million made up primarily of $2.7 million in cash.
Current Liabilities as of March 31, 2016
were $367,290 and decreased year over year by $346,149 or 48.52%. The decrease was the net effect of an increase of $308,851 in
accounts payable and accrued expenses ($367,290 as of March 31, 2016) offset by a decrease of $655,000 in convertible notes. The
convertible notes were converted to stock at the time of the reverse merger and the concurrent private placement offering in May
of 2015. The FY 2016 increase in accounts payable and accrued expenses was attributable to the increase in current liabilities
associated with the ramp up of research and development activities as well as an increase in personnel and administrative costs
in the Company’s second year of operation.
Long-term liabilities totaled $313,709
versus $0 as of March 31, 2016 and represent derivative liabilities resulting from the issuance of placement agent warrants pursuant
to the public offerings in May and June 2015. There were no warrants associated with the first close of the 2016 offering, held
March 10, 2016. The second close of the 2016 Offering was held on April 13, 2016 (in the first quarter of FY 2017) and had associated
placement agent warrants of 153,714.
Stockholder’s Equity was $2.4 million
as of March 31, 2016 and increased by $2.3 million over March 31, 2015. We saw increases in Paid in Capital associated with the
following: (1) Net proceeds of $4.2 million for the 2015 Offering, (2) First close of 2016 Offering held on March 10, 2016 for
net proceeds of $769,687, (3) The conversion of convertible notes to Common Stock for $654,563 in May 2015, (4) The issuance of
829,200 shares of Common Stock to consultants in lieu of cash valued at $538,599. These aforementioned increases in Paid in Capital
were offset by the issuance of broker warrants in the 2015 private placement offer valued at $206,715 (324,650 shares). The overall
increase in Paid in Capital was offset by the higher year over year net loss of $3.7million.
Working capital as of March 31, 2016 was
$2.47 million, and $2.44 million better than the prior fiscal year. The primary source of the additional working capital were
funds raised in the 2015 Offering (net proceeds of $4.2 million) and the first closing of the 2016 Offering (net proceeds of $769,687).
Cash Flow Analysis
Operating activities used cash of $2.8
million in FY 2016 and $433,065 for the period of May 12, 2014 (inception) to March 31, 2015. The increase in cash use is attributable
to the ramp of the Company’s activities in the development and commercialization of its technology (R&D personnel and
material costs), higher spend on General and administrative costs for support personnel and stock based compensation as well as
cost for professional fees and D&O Insurance, that were mainly the result of the company becoming publicly traded in May of
2015.
Investing activities used cash of $179,830
in FY 2016 as compared to $99,197 for the period of May 12, 2014 (inception) to March 31, 2015. FY 2016 investing activities included
fixed asset purchases $143,433, mainly research and development equipment, as well as $36,397 spent on legal costs specifically
related to the development of our intellectual property consisting of patents and licensing agreements, etc.
Financing activities provided cash of
$5.0 million, $3.8 million higher than the period of May 12, 2014 (inception) to March 31, 2015, as the result of the 2015 private
placement offering and the first close of the 2016 offering.
Off-Balance Sheet Transactions
The Company did not engage in any “off-balance sheet
arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of March 31, 2016.
DESCRIPTION OF
BUSINESS
Overview
Akoustis is an early stage, “fabless”
company developing, designing and manufacturing innovative radio frequency (RF) filter products for the mobile wireless device
industry. We use a fundamentally new piezoelectric resonator technology that we call Bulk ONE™ in the manufacturing of bulk
acoustic wave (BAW) resonators, the building blocks of high selectivity “RF” filters required to route signals in
a smartphone or other mobile or wearable device. Filters are a critical component of the RF front-end (RFFE), and their use has
multiplied with the launch and licensing of 4G/LTE frequency bands. They are used to define the range of frequencies of radio
signals that are transmitted (the “passband”) and simultaneously reject unwanted signals. The increasing demand for
wireless data and user applications is driving an increase in the number of wireless channels or frequency bands in a single device.
Each new band introduced creates an increase in a demand for filters. A high-end smartphone, for example, must filter the transmit
and receive paths for 2G, 3G and 4G wireless access methods in up to 15 bands, as well as Wi-Fi, Bluetooth and in some cases GPS.
Signals in the receive paths must be isolated from one another. The filters also must reject other extraneous signals from numerous
sources. The current approach to RF filter manufacturing utilizes thin-film polycrystalline materials (thin-film bulk acoustic
resonators, or “FBARs”) with relatively high resistance that dissipate a significant amount of the energy in the signal
(referred to as “lossy”), resulting in front-end heat generation and reduced battery life. In order to compensate
for such losses, the power amplifier specifications are increased, by as much as a factor of two, which reduces further the battery
life and puts more demands on the thermal management of the mobile device.
As the filter count per mobile device
increases, these inefficiencies will become more limiting. We plan to use single crystal piezoelectric materials to develop a
new class of RF filters with a fundamental advantage to reduce losses over existing thin film technologies. Our technology has
not yet obtained marketing approval or been verified in commercial manufacturing and our RF filters have yet to generate any sales.
We have incurred accumulated losses from our inception through March 31, 2016 of $4,157,176. We have fabricated research and development
(“R&D”) resonators demonstrating the feasibility of our Bulk ONE technology, and are in the process of transitioning
the technology into a production-capable wafer fabrication facility.
Our business model involves “fabless”
manufacturing, meaning that we leverage capital investments and capacity of our strategic partners to manufacture our wafers.
Once our technology is qualified for manufacturing, we expect to design and sell single crystal BAW RF filter products using our
Bulk ONE technology.
We believe our technology is disruptive
to the RF front-end (RFFE) market through the following expected advantages:
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Wider Bandwidth
Coverage,
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Improved power
compression and linearity,
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Reduced power
amplifier cost, for the ultimate purpose of manufacturing our BAW RF filters.
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Reduced heat generation
and reduced battery loading, and
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Reduced guard
band between adjacent frequency bands.
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Once our Bulk ONE technology is qualified
for production, our product focus is on innovative single-band filter products for the growing RFFE market, which can be used
to make duplexer or multiplexer filter products necessary for the Mobile Internet. These products present the greatest near-term
potential for commercialization of our technology. According to the May 2013 McKinsey Global Institute report, the Mobile Internet
and the so-called “Internet of Things” (IoT) is one of the twelve potentially economically disruptive technologies
with an estimated economic value impact that could be over $25 trillion.
During the past year, Akoustis has evaluated
single crystal group-III element nitride piezoelectric materials from at least six suppliers. In early 2015, we signed a joint
development agreement and supply agreement with a foundry partner, and since that time, we have transferred our R&D resonator
process flow to our foundry partner and evaluated single crystal piezoelectric materials ranging from GaN to AlN. Since transferring
our process flow, we completed nine R&D mask design iterations and sixteen multi-wafer lots to advance the performance of
our resonator process. Regarding technical performance, Akoustis achieved an experimental, two-port series-configured resonator
with K-squared of 12.5% for undoped single crystal AlN, approximately two-times higher than incumbent polycrystalline, undoped
AlN. We are currently focused on improving the accuracy of our library models as well as increasing the quality factor (Q) of
our resonator. While we have demonstrated a Q of up to 1600 for our fabricated resonators, we need to achieve a Q of greater than
2000 as our next milestone. We expect significant progress toward this goal over the coming months. As we transition to production
we expect to optimize our process for the best combination of K-squared and Q.
Glossary
The following is a glossary of technical
terms used herein:
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Acoustic
wave
—a mechanical wave that vibrates in the same direction as its direction
of travel.
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Acoustic
wave filter
—an electromechanical device that provides radio frequency control
and selection, in which an electrical signal is converted into a mechanical wave in a
device constructed of a piezoelectric material and then back to an electrical signal.
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Band,
channel or frequency band
—a designated range of radio wave frequencies used
to communicate with a mobile device.
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Bulk
acoustic wave (BAW)
—an acoustic wave traveling through a material exhibiting
elasticity, typically vertical or perpendicular to the surface of a piezoelectric material.
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Digital
baseband
—the digital transceiver, which includes the main processor for the
communication device.
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Duplexer
—a
bi-directional device that connects the antenna to the transmitter and receiver of a
wireless device and simultaneously filters both the transmit signal and receive signal.
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Filter
—a
series of interconnected resonators designed to pass (or select) a desired radio frequency
signal and block unwanted signals.
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Group
III element nitrides
—a dielectric material comprised of group IIIA element,
such as boron (B), aluminum (Al) or gallium (Ga), combined with group VA nitrogen to
form a compound semiconductor nitride such as BN, AlN, or GaN. For resonators,
the dielectric is typically chosen based upon the piezoelectric constant of the material
in order to generate the highest electromechanical coupling.
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Monolithic
topology
—a description of an electrical circuit whereby all the elements of
the circuit are fabricated at the same time using the same process flow.
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Power
Amplifier Duplexer (PAD)
—an RF module containing a power amplifier and duplex
filter components for the RF front-end of a smartphone.
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Piezoelectric
materials
—certain solid materials (such as crystals and certain ceramics) that
produce a voltage in response to applied mechanical stress, or that deform when a voltage
is applied to them.
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Quality
factor, or Q
—energy stored divided by the energy dissipated per cycle. Higher
Q represents a higher caliber of resonance, and implies mechanical and electrical factors
responsible for energy dissipation are minimal. For a given amount of energy
stored in a resonator, Q represents the number of cycles resonance will continue without
additional input of energy into the system.
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Resonator
—a
device whose impedance sharply changes over a narrow frequency range and is characterized
by one or more ’resonance frequency’ due to a standing wave across the resonator’s
electrodes. The vibrations in a resonator can be either characterized by mechanical “acoustic”
waves which travel without a characteristic sound velocity. Resonators are the building
blocks for RF filters used in mobile wireless devices.
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RF
front-end
(RFFE)-the circuitries in a mobile device responsible for processing
the analog radio signals and is located between the device’s antenna and the digital
baseband.
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Surface
acoustic wave (SAW)
—an acoustic sound wave traveling horizontally along the
surface of a piezoelectric material.
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Our Technology
Current RF filters utilize a technology
that is limited by the material properties of the base filter component. Existing bulk acoustic wave filters use an “acoustic
wave ladder” that is based on a monolithic topology approach using lossy polycrystalline materials. By contrast, our Bulk
ONE technology uses a single crystal material, which provides 30% higher piezoelectric properties, compared to conventional polycrystalline
materials used in the industry today. We have fabricated R&D resonators that demonstrate the feasibility of our approach and
believe our technology will yield a new generation of filter products.
Bulk ONE Technology consists of novel
single-crystal piezoelectric materials, which are fabricated into bulk-mode, acoustic wave resonators and RF filters. Our patented
piezoelectric materials contain high-purity Group III element nitride materials and possess a unique signature, which can be detected
by conventional material metrology tools. We utilize analytical modeling techniques to aid in the design of our materials and
our material specifications are typically outsourced to a third party for manufacturing. Once our materials are ready for processing,
we supply our wafer manufacturing partner raw materials, a mask design file, and unique process sequence in order to fabricate
our resonators and filters. Our wafer process flow is compatible with wafer level packaging (WLP) that allows for low profile,
cost effective filters to be produced.
Challenges Faced by the Mobile Device
Industry
Rising consumer demand for always-on wireless
broadband connectivity is creating an unprecedented need for high performance RF Front End for mobile devices. Mobile devices
such as smartphones and tablets are quickly driving the Internet of Things (IoT). The rapid growth in mobile data traffic is testing
the limits of existing wireless bandwidth. Carriers and regulators have responded by opening new swaths of RF spectrum, driving
up the number of frequency bands in mobile devices. This substantial increase in frequency bands has created a demand for more
filters, as well as a demand for filters with higher selectivity. The global transition to LTE and adoption of LTE-Advanced with
more sophisticated carrier aggregation and multiple-input, multiple-output (MIMO) techniques will continue to push the requirements
for increased supply of high performance filters.
Furthermore, the new spectrum introduced
by 4G/LTE is driving licensing at higher frequencies than previous 3G smartphone models. For example, new TDD LTE frequencies
allocated for 4G wireless cover frequencies nearly twice has high as covered in previous generation phones. As a result, demand
for high frequency or high band filters represents the single largest growth opportunity in the RF front end, according to a Mobile
Experts May 2015 report. For traditional “low band” frequencies, SAW filters have been the primary choice, while high
band solutions have utilized BAW filters due to their performance and yield. While there are multiple sources of supply for SAW
technology, the source of supply for BAW filters is more limited and essentially dominated by two manufacturers worldwide.
The first problem is that signal loss
of current generation acoustic wave filters is excessively high, and up to half of the transmit power is wasted as heat, which
ultimately constrains battery life. The second challenge is that the allocated spectrum for mobile communication bands requires
high bandwidth RF Filters, which, in turn, requires wide bandwidth core resonator technology. In addition, filters with inferior
selectivity either reduce the available operating bands the mobile device can support or increase the noise in the operating bands.
Each of these problems negatively impacts the end-user’s experience when using the mobile device.
Our Solutions
Our immediate focus is on the commercialization
of wide bandwidth RF filters operating in the high frequency portion of the RFFE (called high band). Using our Bulk ONE technology
we believe these filters enable new PAD module or RFFE competition for high band modules as well as performance-driven low band
applications. Initially, we expect to target select strategic RFFE market leaders as well as Tier 2 mobile phone original equipment
manufacturers (“OEMs”) and/or RFFE module suppliers. Longer term, our focus will be to expand our market share by
engaging with multiple mobile phone OEMs and RFFE module manufacturers. We are working with our foundry partner, Global Communications
Semiconductor LLC, to commercialize our first filters using our Bulk ONE technology. This will be the first in a series of R&D
activities that will set the foundation for filter products that we believe can disrupt the high band filter market. We will develop
a series of filter designs used in the manufacturing of duplexers or more complex multiplexers targeting the 4G/LTE frequency
bands. We believe our filter designs will create an alternative and replace filters currently manufactured using materials with
fundamentally inferior performance.
Our Business Model
We will provide filters to the market
through the manufacturing of our product using a “fabless” outsourced manufacturing model. By leveraging the existing
manufacturing capacity of our partner, we will operate a capital-efficient business. Our target customers will be mobile phone
OEMs and/or those companies that make part of or the entire RFFE module. We expect sales of our filters to these companies will
be the source of our revenue. We will principally provide design and development resources and manage our outsourced partners
to support our product realization process. There are two companies specializing in manufacturing of BAW filters that dominate
this market. See “Competition” below. We believe our Bulk ONE technology provides a competitive filter alternative
and that there will be factors creating significant barriers to entry for potential additional competitors:
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Our
growing portfolio of intellectual property (see “Intellectual Property” below);
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Our
highly experienced leadership and technical team; and
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Being
first to market with a competitive high performance BAW filter alternative.
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The Mobile Internet
Rising consumer demand for always-on wireless
broadband connectivity is creating an unprecedented need for high performance RFFE for mobile devices. Mobile devices such as
smartphones and tablets are quickly becoming the primary means of accessing the Internet. The exponential growth in mobile data
traffic is testing the limits of existing wireless bandwidth. Carriers and regulators have responded by opening new RF spectrum,
driving up the number of frequency bands in mobile devices. As a prime example, a Presidential directive was issued in 2010 to
the FCC and other agencies to make available an additional 500 MHz of RF spectrum to meet the growing demand in the United States.
Similar initiatives are occurring worldwide. Adding RF spectrum is not a complete solution. The added spectrum does not come in
large contiguous blocks, but rather in small channels or bands of varying size and frequency. Thus, more data means more bands,
and the result is a rapid and substantial increase in the number of filters in mobile devices.
The Challenge
Moore’s Law predicts that transistor
density on integrated circuits will double approximately every two years, and the digital baseband of mobile devices has improved
exponentially as predicted by Moore’s Law. However, improvements to the analog RFFE have been limited by existing filter
technology, with only incremental updates to existing technology. Consequently, the RFFE is taking up an ever-growing share of
the total cost of mobile devices. Most mobile devices sold today operate on “fourth generation” wireless technology,
or 4G. There are nearly fifty 4G bands recognized worldwide today, and the list is growing. The RFFE must meet these growing data
demands while reducing cost and improving battery life. Our solution involves a new approach to RFFE component manufacturing,
enabled by Bulk ONE technology. Our technology will produce filters that will reduce the overall system cost and improve performance
of the RFFE.
Figure 1—Our Solution
Single-Band Designs for Duplexers and
Multiplexers
SAW filters have been preferred in modern
RFFE because of their high performance, small size and low cost. However, traditional SAW ladder designs do not perform well in
high frequency bands or bands with closely spaced receive and transmit channels, typical of many new bands. Therefore, BAW filters
are needed for these bands. We have demonstrated in a development environment our ability to fabricate BAW resonators, the building
block of BAW filters, that are more efficient than existing available BAW resonators, and we believe the improved efficiency will
reduce the total cost of RFFE as well as reduce the battery demand for mobile devices. Additionally, we believe that our Bulk
ONE filters will allow for a single manufacturing method that will support all of the BAW filter band range and a significant
portion of the SAW band range. Figure 2 below illustrates what we believe will be the frequency range of our Bulk ONE technology.
Figure 2— The potential range
of our technology
Pure-Play Filter Provider Enables New
Module Competition
Given the high sound velocity in our piezoelectric
materials, our technology allows for a wide range of frequency coverage, and we plan to supply filters that will support 4G/LTE
and beyond. We have successfully demonstrated resonators that will support the design and fabrication of 4G/LTE filters, and our
current focus is on completing the development required to transition this single-crystal BAW technology to high volume manufacturing.
We will be a pure-play filter supplier that will address the increasing RF complexity placed on RF front-end manufacturers supporting
4G/LTE.
Figure 3— Increase in average
number of RF filters per each mobile device from 2005 – 2015 (Source: Ericsson)
Commercialization
Our immediate focus is to address problems
in the RFFE with innovative single-band designs using our Bulk ONE technology. We are currently developing our first commercial
single-band filter in collaboration with our foundry partner Global Communication Semiconductors, LLC (“GCS”), under
the terms of a signed development agreement. We are focused on developing fixed-band filters because we believe these designs
present the greatest near-term potential for commercialization of our technology, and that once demonstrated, there is a shorter
learning curve for having the foundry ready for production.
The development agreement with our foundry
partner contains the following milestones:
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Milestone
1 (Manufacturing Partner Gap Analysis)—Validate required materials, people, process
and equipment are present for volume manufacturing.
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Milestone
2 (Process Transfer to Foundry Partner)—Design of filters, technology transfer
and fabrication on GCS’s high-volume manufacturing equipment, fully tested wafers,
and delivery of prototypes.
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Milestone
3 (Complete Filter Process Capability)—Update design with process feedback, fabricate
multiple wafers using the approved manufacturing process flow, fully tested wafers, calculated
yield and delivery of initial product.
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Milestone
4 (Production-Ready Filter Design)—Filter design complete and manufacturing process
locked
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Milestone
5 (Product packaging and ramp)—Product fully packaged and ready for production,
focus shift to revenue generation from filter sales.
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Milestones 1 and 2 are complete. We continue
to work on Milestone 3, with expected completion in the second half of 2016. We expect to generate revenue from the sale of our
filters in 2017, after completion of Milestone 4, and Milestone 5, which are targeted for completion by the first half of 2017.
Our Foundry Agreement was made effective
as of February 27, 2015 and carries a term of five years. At the end of the original term, the Foundry Agreement will be extended
automatically for one additional year unless within 180 days prior to the end of the initial term, either party gives written
notice of its intention to terminate the agreement. The Foundry Agreement outlines proposed activities for development support
that could be requested by us and provided by our foundry partner. The Foundry Agreement also covers the agreement to manufacture,
test and deliver wafers manufactured using our resonator process flow pursuant to purchase orders issued by us.
The Joint Development Agreement was made
effective as of February 27, 2015 and carries a term of five years at which time it terminates immediately without further notice
or action when all Statements of Work governed by the agreement terminate or expire. During the term of the agreement we will
collaborate with each other to develop one or more products. Each of the parties will bear all direct and related costs associated
with their development activities. The agreement calls for the designation of a project manager from each of the parties and the
formation of an advisory committee made up of members from each party to manage escalation of issues unresolved by the project
managers. The Joint Development Agreement indicates that we jointly own in equal, undivided shares title and interest in any joint
development works and all Intellectual property rights embodied in those works other than the Intellectual property rights embodied
in either party’s background technology. Background technology means all information that is owned, controlled, licenses
developed or acquired solely outside the performance of the Joint Development Agreement.
The Foundry Agreement and Joint Development
Agreement are filed as exhibits to the registration statement of which this prospectus is a part.
Research and Development
Since inception, the Company’s focus
has been on developing an innovative mobile-wireless filter technology with a compelling value proposition to our potential customers
and a significant and noticeable impact to the end user.
Whereas today’s polycrystalline
material (used to manufacture RF resonators and filters) is sputtered on a metal-coated carrier, our Bulk ONE technology employs
high quality, single crystal resonator films, which are used as the enabler to create high performance BAW RF filters. This single
crystal material is a key differentiator when compared to the incumbent amorphous thin-film technologies, because it increases
the acoustic velocity and the electromechanical coupling coefficient in the resonator, which results in higher filter efficiencies
and lower power consumption – which leads to simplified RFFEs, longer battery life and reduced tissue heating. Our spend
for research and development totaled $1.2 million for fiscal year 2016 and $0.24 million for the period of May 12, 2014 (inception)
to March 31, 2015, and was focused on single crystal material development and resonator demonstration. Current R&D investments
include single crystal materials advancement, technology transfer to our manufacturing partner and resonator development and filter
design.
As a result of our efforts, we developed
and recently published a record breaking electromechanical coupling coefficient of 12.5% for our single crystal undoped AIN piezoelectric
resonators as shown in Figure 4. The spacing between resonance and anti-resonance frequencies was 182MHz for our 3.4GHz resonator
device. Our focus is now on improving the quality factor of our device through resonator design and process optimization experiments.
Figure 4- Akoustis’ single crystal
undoped AIN piezoelectric resonator device performance. The plot represents a de-embedded, two-port series-configured BAW resonator
modeled near resonance frequency.
Intellectual Property
We rely on a combination of intellectual
property rights, including patents, know-how and trade secrets, along with copyrights, trademarks and contractual obligations
and restrictions to protect our core technology and business.
We currently have seven pending patent
applications in the United States as well as one filing for which we have received official notification that claims have been
allowed and one additional that was officially published on June 7, 2016. In addition, outside the US we have three pending patent
applications and three utility patents awarded. The three awarded applications entered the divisional process and are anticipated
to result in up to three additional utility patents outside of the United States. The patents tie directly to our single-crystal
bulk acoustic wave (BAW) technology, including materials and device designs, methods of manufacture, integrated circuit designs,
wafer packaging, and point of use (to include mobile applications). The Company will continue to innovate and expand our patent
portfolio, and when appropriate, we will look to purchase license(s) that grant access to additional intellectual property that
enables, enhances or further expands our technical capabilities and/or product offerings.
We believe that it is likely that Akoustis
will have competitive advantages from rights granted under our patent applications. Some applications, however, may not result
in the issuance of any patents. In addition, any future patent may be opposed, contested, circumvented or designed around by a
third party or found to be unenforceable or invalidated. Others may develop technologies that are similar or superior to our proprietary
technologies, duplicate our proprietary technologies or design around patents owned or licensed by us.
We generally control access to, and use
of, our confidential information through the use of internal and external controls, including contractual protections with employees,
contractors and customers. We rely in part on the United States and international copyright laws to protect our intellectual property.
All employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting
relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection
with the employment or consulting relationship.
Despite our efforts to protect our intellectual
property, unauthorized parties may still copy or otherwise obtain and use our software, technology or other information that we
regard as confidential and proprietary. In addition, we intend to expand our international presence, and effective patent, copyright,
trademark and trade secret protection may not be available or may be limited in foreign countries.
The semiconductor industry is characterized
by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive
litigation for many companies. Although we have not received any third party claims, we expect that in the future we may receive
communications from various industry participants alleging our infringement of their patents or other intellectual property rights.
Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and
our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our
sales and divert the efforts of our technical and management personnel. In the event we receive an adverse result in any litigation,
we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms
or at all, cease the sale of products, expend significant resources to develop alternative technology or discontinue the use of
processes requiring the relevant technology.
Akoustis™ and Bulk ONE™ are
trademarks of Akoustis, Inc.
Competition
The competitive landscape for the Company
is small and is controlled by handful of RF component suppliers. These companies include, among others, Broadcom (previously known
as Avago Technologies Ltd.), Murata Manufacturing Co., Ltd., Qorvo, Inc., Skyworks Solutions Inc., Taiyo Yuden, and TDK Epcos.
Two of these companies dominate the high band filter market, controlling a significant portion of the customer base and are increasing
capacity to meet the growth demands of the 4G/LTE market.
We will compete directly with them to
secure design slots inside RFFE modules – targeting companies that procure filters or have captive sources. We believe that
our filter designs will be superior in performance and will approach perspective customers as pure-play filter supplier –
offering advantages in performance, over the full frequency range, with competitive costs. Our challenge will be to convince the
companies that we have a strong intellectual property position, which we will be able to ramp in volume, that we will meet their
price targets, and that we can satisfy reliability requirements.
Employees
We have put a premium on hiring the best
talent at the right time to enable our core technology and business growth. This includes establishing a competitive compensation
and benefits package – enhancing our ability to recruit experienced personnel and key technologists. We currently have 15
full-time employees plus 13 independent contractors working with the Company, and we will continue to hire specific and targeted
positions to further enable our technology and manufacturing capabilities.
Government Regulations
Our business and products in development
are subject to regulation by various federal and state governmental agencies, including the radio frequency emission regulatory
activities of the FCC, the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of
the Department of Commerce, the product safety regulatory activities of the Consumer Products Safety Commission, the environmental
regulatory activities of the Environmental Protection Agency.
The rules and regulations of the FCC limit
the RF used by and level of power emitting from electronic equipment. Our RF filters, as a key element enabling consumer electronic
smartphone equipment, are required to comply with these FCC rules, and may require certification, verification or registration
of our RF filters with the FCC. Certification and verification of new equipment requires testing to ensure the equipment’s
compliance with the FCC’s rules. The equipment must be labeled according to the FCC’s rules to show compliance with
these rules. Testing, processing of the FCC’s equipment certificate or FCC registration and labeling may increase development
and production costs and could delay the implementation of our Bulk ONE acoustic wave resonator technology for our RF filters
and the launch and commercial productions of our filters into the U.S. market. Electronic equipment permitted or authorized to
be used by us through FCC certification or verification procedures must not cause harmful interference to licensed FCC users,
and may be subject to RF interference from licensed FCC users. Selling, leasing or importing non-compliant equipment is considered
a violation of FCC rules and federal law, and violators may be subject to an enforcement action by the FCC. Any failure to comply
with the applicable rules and regulations of the FCC could have an adverse effect on our business, operating results and financial
condition by increasing our compliance costs and/or limiting our sales in the United States.
The semiconductor and electronics industries
also have been subject to increasing environmental regulations. A number of domestic and foreign jurisdictions seek to restrict
the use of various substances, a number of which have been used in our products in development or processes. While we have implemented
a compliance program to ensure our product offering meets these regulations, there may be instances where alternative substances
will not be available or commercially feasible, or may only be available from a single source, or may be significantly more expensive
than their restricted counterparts. Additionally, if we were found to be non-compliant with any such rule or regulation, we could
be subject to fines, penalties and/or restrictions imposed by government agencies that could adversely affect our operating results.
Our cost to maintain compliance with existing environmental regulations is expected to be nominal based on our structure in which
we outsource a majority of our operations to suppliers that are responsible for meeting environmental regulations. We will continue
to monitor our quality program and expand as required to maintain compliance and ability to audit our supply chain.
Noncompliance with applicable regulations
or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of
profits, fines, damages, civil and criminal penalties, or injunctions. An adverse outcome in any such litigation could require
us to pay contractual damages, compensatory damages, punitive damages, attorneys’ fees and costs. These enforcement actions
could harm our business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do
not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be
materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s
attention and resources and an increase in professional fees.
Organizational History
We were incorporated as Danlax, Corp.,
in Nevada on April 10, 2013. Prior to the Merger and Split-Off (each as defined below), our business was the development and sales
of mobile games.
On April 15, 2015, (i) we changed our
name to Akoustis Technologies, Inc., and (ii) we increased our authorized capital stock from 75,000,000 shares of Common Stock,
par value $0.001 per share, to 300,000,000 shares of Common Stock, par value $0.001 per share (the “Common Stock”),
and 10,000,000 shares of “blank check” preferred stock, par value $0.001 per share.
On April 23, 2015, we completed a 1.094891-for-1
forward split of our Common Stock in the form of a dividend, with the result that the 11,740,000 shares of Common Stock outstanding
immediately prior to the stock split became 12,854,024 shares of Common Stock outstanding immediately thereafter. All share and
per share numbers in this prospectus relating to our Common Stock have been adjusted to give effect to this stock split, unless
otherwise stated.
On May 22, 2015, our wholly owned subsidiary,
Akoustis Acquisition Corp., a corporation formed in the State of Delaware on May 15, 2015 (“Acquisition Sub”), merged
(the “Merger”) with and into Akoustis, Inc., a corporation incorporated in the State of Delaware on May 12, 2014.
Akoustis, Inc., was the surviving corporation in the Merger and became our wholly owned subsidiary. All of the outstanding stock
of Akoustis, Inc., was exchanged for shares of our Common Stock.
In connection with the Merger and pursuant
to a Split-Off Agreement, we transferred our pre-Merger assets and liabilities to our pre-Merger majority stockholder, in exchange
for the surrender by him and cancellation of 9,854,019 shares of our Common Stock.
As a result of the Merger and Split-Off,
we discontinued our pre-Merger business and acquired the business of Akoustis, Inc., and have continued the existing business
operations of Akoustis, Inc., as a publicly-traded company under the name Akoustis Technologies, Inc.
In accordance with “reverse merger”
accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Merger were replaced
with the historical financial statements of Akoustis, Inc., prior to the Merger in all filings with the SEC.
On May 22, 2015, we also changed our fiscal
year from a fiscal year ending on July 31 of each year to one ending on March 31 of each year, which is the fiscal year end of
Akoustis, Inc.
Prior to the Merger, we were a “shell company”
(as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
As a result of the Merger, we have ceased to be a shell company. The information contained in our Current Report dated May 22,
2015, together with the information contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2014, and our
subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the SEC, constituted the current “Form
10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended
(the “Securities Act”).
Akoustis, Inc.
Akoustis Inc. was founded in 2014 by experienced
industry leaders and scientists from University of California at Santa Barbara (UCSB) and Cornell University. Our initial funding
was through a $0.5 million series seed funding in 2014, and we received $655,000 in additional investments in convertible notes
and stock by the founders and original angel investors in March 2015. We received a National Science Foundation (“NSF”)
Small Business Innovation Research (“SBIR”) grant that started in January 2015 followed by a second grant award in
April 2015. In addition, we received matching funds from North Carolina Science, Technology & Innovation Department of Commerce.
More recently we received a third NSF SBIR award in February 2016. The funds from these sources supported the operations of Akoustis
Inc. and the completion of multiple key milestones including the application for more than ten patents, hiring of key personnel,
the engagement with a foundry prototype facility, initiation of SBIR activities and the engagement of strategic partners for whom
would consume our RF filters for wireless communications.
The 2015 Offering
Concurrently with the closing of the Merger,
we held a closing of a private placement offering (the “2015 Offering”) in which we sold 3,531,104 shares of our Common
Stock (including shares issued on conversion of convertible notes of Akoustis, Inc., as described below), at a purchase price
of $1.50 per share (the “2015 Offering Price”). On June 10, 2015, we completed a second and final closing of the 2015
Offering in which we sold an additional 261,000 shares of Common Stock. In total, we sold an aggregate of 3,792,104 shares of
Common Stock in the 2015 Offering for gross proceeds of $5,688,156 (before deducting expenses of the offering).
Investors in the shares were given anti-dilution protection with respect to the shares of Common Stock
sold in the 2015 Offering such that if within 12 months after the final closing of the 2015 Offering, we issue additional shares
of Common Stock or Common Stock equivalents (subject to customary exceptions, including but not limited to issuances of awards
under our 2015 Plan (as defined below) and certain issuances of securities in connection with credit arrangements, equipment financings,
lease arrangements or similar transactions) for a consideration per share less than the 2015 Offering Price (the “Lower Price”),
each such investor will be entitled to receive from us additional shares of Common Stock in an amount such that, when added to
the number of shares of Common Stock initially purchased by such investor, will equal the number of shares of Common Stock that
such investor’s Offering subscription amount would have purchased at the Lower Price.
The closing of the 2015 Offering and the
closing of the Merger were conditioned upon each other.
In connection with the 2015 Offering,
we paid Northland Securities, Inc., and Katalyst Securities LLC, each a U.S. registered broker-dealer (the “Placement Agents”)
a cash commission of 10% of the gross proceeds (or 2% in the case of certain existing Akoustis, Inc., investors) raised from investors
in the 2015 Offering. In addition, the Placement Agents received warrants to purchase a number of shares of Common Stock equal
to 10% (or 2% in the case of certain existing Akoustis, Inc., investors) of the number of shares of Common Stock sold in the 2015
Offering, with a term of five (5) years and an exercise price of $1.50 per share (the “2015 Placement Agent Warrants”).
Any sub-agent of the Placement Agents that introduced investors to the 2015 Offering was entitled to share in the cash fees and
warrants attributable to those investors as described above.
As a result of the foregoing, the Placement
Agents and their sub-agents were paid aggregate commissions of $486,976 and were issued 2015 Placement Agent Warrants to purchase
an aggregate of 324,650 shares of our Common Stock. We were also required to reimburse the Placement Agents approximately $77,150
of legal expenses incurred in connection with the 2015 Offering.
The form of 2015 Placement Agent Warrants
is filed as an exhibit to the registration statement of which this prospectus is a part.
The 2016 Offering
On March 10, 2016, we held a closing of
a private placement offering (the “March 2016 Offering”) in which we sold 494,125 shares of our Common Stock at a
fixed purchase price of $1.60 per share (the “2016 Offering Price”), for aggregate gross proceeds of $790,600 (before
deducting expenses of the March 2016 Offering).
On April 14, 2016, the Company held closings
of a private placement offering (the “April 2016 Offering”) in which the Company sold 1,741,185 shares of Common Stock
at a fixed purchase price of $1.60 per share (the “2016 Offering Price”), for aggregate gross proceeds of $2,785,896
(before deducting expenses for legal services and agent commissions of the April 2016 Offering).
Investors in the shares were given anti-dilution
protection with respect to the shares of Common Stock sold in the 2016 Offering for the period from the closing
of the April 2016 Offering until 90 days after the date on which the registration statement that we are required to file under
a Registration Rights Agreement with the investors is declared effective by the SEC (see “Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities —Registration Rights” below)
, the Company shall issue additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions, including
but not limited to issuances of awards under the Company’s 2015 Equity Incentive Plan and certain issuances of securities
in connection with credit arrangements, equipment financings, lease arrangements or similar transactions) for a consideration
per share less than the 2016 Offering Price (as adjusted for any subsequent stock dividend, stock split, distribution, recapitalization,
reclassification, reorganization or similar event) (the “Lower Price”), each such investor will be entitled to receive
from the Company additional shares of Common Stock in an amount such that, when added to the number of shares of Common Stock
initially purchased by such investor, will equal the number of shares of Common Stock that such investor’s Offering subscription
amount would have purchased at the Lower Price.
In connection with the 2016 Offering,
we agreed to pay the Placement Agents a cash commission of 8% of the gross proceeds raised from investors first contacted by the
Placement Agents in the 2016 Offering. In addition, the Placement Agents received warrants to purchase a number of shares of Common
Stock equal to 10% of the number of shares of Common Stock sold in the 2016 Offering, with a term of five (5) years and an exercise
price of $1.60 per share (the “2016 Placement Agent Warrants”). Any sub-agent of the Placement Agents that introduced
investors to the 2016 Offering was entitled to share in the cash fees and warrants attributable to those investors as described
above.
As a result of the foregoing, the Placement
Agents and their sub-agents were paid an aggregate commission of $196,752 and were issued 2016 Placement Agent Warrants to purchase
an aggregate of 153,714 shares of Common Stock. We were also required to reimburse the Placement Agents approximately $17,500
of legal expenses incurred in connection with the 2016 Offering, of which $7,500 was paid by the issuance of 4,690 shares of Common
Stock (valued at the 2016 Offering Price).
The form of 2016 Placement Agent Warrants
is filed as an exhibit to the registration statement of which this prospectus is a part.
Properties
Our headquarters in Huntersville, NC,
is a 4,800 square foot facility that we lease for base rent of $3,800 per month, with a term expiring in April 2018. We believe
our facilities are sufficient to meet our current needs, and we will look for suitable expansion as and when needed.
LEGAL PROCEEDINGS
From time to time, we may become involved
in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any 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.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Directors
and Executive Officers
Below are the names of and certain information regarding our
current executive officers and directors.
Name
|
|
Age
|
|
Position
|
|
Date Named to Board of
Directors/as Executive Officer
|
|
|
|
|
|
|
|
Arthur E. Geiss
|
|
63
|
|
Co-Chairman of the Board
|
|
May 22, 2015
|
Jerry D. Neal
|
|
71
|
|
Co-Chairman of the Board
|
|
May 22, 2015
|
Jeffrey B. Shealy
|
|
47
|
|
Chief Executive Officer; Director
|
|
May 22, 2015
|
David M. Aichele
|
|
50
|
|
Vice President of Business Development
|
|
May 22, 2015
|
Mark Boomgarden
|
|
48
|
|
Vice President of Operations
|
|
May 22, 2015
|
Cindy C. Payne
|
|
56
|
|
Chief Financial Officer
|
|
May 22, 2015
|
Steven P. DenBaars
|
|
53
|
|
Director
|
|
May 22, 2015
|
Jeffrey K. McMahon
|
|
45
|
|
Director
|
|
May 22, 2015
|
Directors are elected to serve until the
next annual meeting of stockholders and until their successors are elected and qualified. Directors are elected by a plurality
of the votes cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was
elected and until a successor has been elected and qualified.
A majority of the authorized number of
directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the
meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without
a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.
Executive officers are appointed by the
Board of Directors and serve at its pleasure.
The principal occupation and business
experience during the past five years for our executive officers and directors is as follows:
Arthur E. Geiss
, Co-Chairman of
the Board,
is currently the manager of AEG Consulting, LLC. AEG Consulting offers guidance concerning manufacturing,
operations, and process development to technology companies. Prior to establishing AEG Consulting, Mr. Geiss served as VP Wafer
Fab Operations at RFMD (now Qorvo, Inc.). He was responsible for the start-up and operations of Gallium Arsenide epitaxial-growth
and wafer-fabrication. Previous to RFMD, Mr. Geiss held management positions with Alpha Industries, Inc. (purchased by Skyworks
Solutions, Inc.) and before that at ITT Gallium Arsenide Technology Center (purchased by Cobham plc). At both companies he was
responsible for process and device development and wafer fabrication operations. Prior to these, Mr. Geiss held a research position
at the Xerox Palo Alto Research Center (now PARC, Inc.). At PARC he investigated the structure of vitreous materials and amorphous
thin-films using Raman spectroscopy. Mr. Geiss has served as a Member of the Executive Committee of the IEEE GaAs IC Symposium
(now CSICS) and as a Member of the Executive Committee of the GaAs Manufacturing Technology Conference (now CS Mantech). He has
numerous patents and publications on electronic devices, processing, and manufacturing. Mr. Geiss earned a B.S. degree at Lafayette
College and M.S. and Ph.D. degrees at Brown University, all in physics. We believe that Mr. Geiss adds value to our Board of Directors
based on his extensive experience with technology companies, his executive leadership and management experience and his research
background.
Jerry D. Neal
, Co-Chairman of the
Board,
founded RF Micro Devices Inc. (now, Qorvo, Inc.) in 1991 and served as its Executive Vice President of Marketing
and Strategic Development from January 2002 to May 31, 2012. Dr. Neal served as a Vice President of Marketing of RF Micro Devices
Inc., from May 1991 to January 2000 and its Executive Vice President of Sales, Marketing and Strategic Development from January
2000 to January 2002. Prior to joining RF Micro Devices Inc., he was employed for 10 years with Analog Devices, Inc., including
Marketing Engineer, Marketing Manager and Business Development Manager. Dr. Neal also founded Moisture Control Systems for the
production of his patented electronic sensor for measurement of soil moisture for research, which was later sold to Hancor, Inc.
He has been a Director of Jazz Semiconductor, Inc. since November 2002. Dr. Neal served as a Director of RF Micro Devices Inc.
from February 1992 to July 1993. He also held various positions in Hewlett-Packard. Dr. Neal received his Associate’s Degree
in Electrical Engineering from Gaston Technical Institute and North Carolina State University and his doctor of business management
degree from Southern Wesleyan University. We believe that Mr. Neal adds value to our Board of Directors based on his extensive
executive leadership and management experience and his sales, marketing and product development background.
Jeffrey B. Shealy
is our CEO
and a Director. He has over 20 years’ experience in RF/Wireless focused on building businesses around solid-state materials
and electron device innovation. He spent 13 years at RF Micro Devices, Inc. (now Qorvo) as Vice-President and General Manager.
Mr. Shealy is a Howard Hughes Doctoral Fellow and spent 7 years with Hughes Electronics at Hughes Research Labs (now HRL Labs)
and Hughes Network Systems (now Hughes). He founded RF Nitro, a high-tech start-up venture acquired by RFMD in 2001. . Mr. Shealy
holds an MBA degree from Wake Forest University, Master of Science and Doctorate degrees in Electrical and Computer Engineering
from University of California at Santa Barbara (UCSB), and a Bachelor’s of Science degree in Electrical and Computer Engineering
from NC State University. We believe that Mr. Shealy adds value to our Board of Directors based on his intimate knowledge of our
business plans and strategies, his experience with high tech startup ventures and his years of experience in the RF/Wireless industry.
David M. Aichele
is Vice President
of Business Development responsible for leading the sales and marketing efforts of the company. Dave joined the company in May
2015, bringing over 20 years of international sales, business development, and marketing experience with him. Prior to Akoustis,
Dave was EVP Sales & Marketing for T1Visions, a high tech software start-up company achieving 2014 INC 500 fasting growing
private companies in US. Dave held Director positions at RFMD (previously Qorvo), where he was responsible for the business development
and launch of new RF semiconductor products targeting the cellular market, and senior management positions at Tessera and TE Connectivity,
where he led business development and sales teams. Dave holds a BSEE from Ohio University and an MBA from the Leeds School of
Business at the University of Colorado.
Mark D. Boomgarden
is Vice
President of Operations and has over 20-years of experience in high-technology companies, to include high-volume manufacturing
of wafer-based products, licensing and technology transfer, research and development, mergers and acquisitions, and new-company
formation. He has held key leadership roles in operations, engineering and business development, to include both domestic and
international companies. Prior to Akoustis, Mark served as Vice President and General Manager at DigitalOptics Corporation, a
wholly owned subsidiary of Tessera Technologies, Inc. (Nasdaq: TSRA). He joined DigitalOptics from Tessera North America, where
he served as General Manager of their wafer-level optics division and as Vice President of their wafer-based camera business for
mobile-phones. Prior to Tessera, Mark worked in various operations and engineering leadership positions with Digital Optics (private
company) and Alcatel. Mark holds a BSEE from the University of North Carolina at Charlotte (UNCC). He is a past Chairman of the
Electrical and Computer Engineering (ECE) Advisory Board at UNCC, a founding Board Member of the Energy Production and Infrastructure
Center (EPIC), and a current board member of Koyr and CLT Joules. Mark is a veteran of the United States Navy Submarine Force,
US Atlantic Fleet.
Steven P. DenBaars
is a Professor
of Materials and Co-Director of the Solid-State Lighting Center at UC Santa Barbara. Professor DenBaars joined UCSB in 1991 and
currently holds the Mitsubishi Chemical Chair in Solid State Lighting and Displays. Prof. DenBaars has been in the LED business
for over 25 years starting with his prior work at Hewlett-Packard Optoelectronics division in 1988 and involvement in over 2 LED
startups. Specific research interests include growth of wide-band gap semiconductors (GaN based), and their application to Blue
LEDs and lasers and energy efficient solid state lighting. This research has led to over 759 scientific publications and over
168 U.S. patents on electronic materials and devices. He has been awarded a NSF Young Investigator award, Young Scientist Award
of the ISCS, is an IEEE Fellow, IEEE Aron Kressel Award, Visiting Professor at Nanyang Technological University (NTU), Singapore,
and the Institute for Advanced Studies (IAS) HKUST. He was recently elected to the National Academy of Engineering (2012), and
elected Fellow of the National Academy of Inventors (2014). We believe that Professor DenBaars adds value to our Board of Directors
based on his years of experience in the LED industry and his extensive research involving wide-based gap semiconductors and their
application to high power electronic devices.
Jeffrey K. McMahon
is a Managing
Director with North Highland, a global management consulting firm, and is currently the Market Lead for North Highland’s
largest market. He has an extensive background in business and information technology consulting in the financial services, energy,
and telecommunications industries. He has 20 years of experience helping Fortune 100 companies drive revenue, optimize processes,
improve customer experience and manage risk. His areas of expertise include marketing, strategy articulation and realization,
strategic execution, business process management and merger integration. Prior to joining North Highland, Mr. McMahon was a Manager
in Accenture’s process practice area. Mr. McMahon received a Bachelor of Science degree in Civil Engineering from North
Carolina State University. We believe that Mr. McMahon adds value to our Board of Directors based on his extensive experience
in business and technology consulting and his marketing and strategization expertise.
Cindy C. Payne
joined us in
2015 as CFO and Treasurer, bringing over 20 years of experience in financial management. Ms. Payne most recently served as the
CFO for Amerock LLC, a private equity owned hardware distributor in Mooresville, NC. Prior to joining Amerock, Ms. Payne held
the position of CFO for Tolt Service Group, a private equity owned technology services provider, from 2010 until the company’s
sale in 2014. Her experience prior to Tolt included the role of Director of Financial Planning and Analysis in the Soft Trim Division
of International Automotive Components, a Tier I supplier to the automotive industry and the role of Controller of NewBold Corporation.
NewBold Corporation, located in the Roanoke, Virginia area, offers both manufactured products and technology services to retail
and healthcare markets. Ms. Payne graduated Magna Cum Laude from Western Carolina University with a Bachelor of Science in Business
Administration and is a Certified Public Accountant, licensed in the state of Virginia.
Director Independence
We are not currently subject to listing
requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the
board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors
comprised of a majority of “independent directors.” Nevertheless, our Board has determined that Messrs. Geiss, McMahon
and Neal are independent directors under the applicable standards of the SEC and The Nasdaq Stock Market. (Our stock is not listed
on The Nasdaq Stock Market or any securities exchange.)
Family Relationships
There are no family relationships among
our Directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers
has been involved in any of the following events during the past ten years:
|
·
|
any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time;
|
|
·
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offences);
|
|
·
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his or her involvement in any type of business, securities
or banking activities; or
|
|
·
|
being
found by a court of competent jurisdiction (in a civil action), the Commission or the
Commodity Futures Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Board Committees
Our Board has appointed an advisory compensation
committee consisting of Messrs. Geiss, McMahon, Neal and Shealy to make compensation recommendations to full Board for approval.
No specific authority of the Board has been delegated to this committee, and it has no charter.
The Board currently has not established
any other committees. Our Board of Directors may designate from among its members an executive committee and one or more other
committees in the future.
We do not have an audit committee or audit
committee charter. The entire Board of Directors oversees our audits and auditing procedures. The Board of Directors has at this
time not determined whether any director is an “audit committee financial expert” within the meaning of Item 407(d)(5)
for SEC regulation S-K.
We do not have a nominating committee
or a nominating committee charter. Further, have not adopted a policy with regard to the consideration of any director candidates
recommended by security holders. To date, no security holders have made any such recommendations.
The entire Board of Directors performs
all functions that would otherwise be performed by committees. Given the present size of our board and the scope of our operations,
we believe it is not practical for our Board to have committees. If we are able to grow our business and increase our operations,
we intend to expand the size of our board and allocate responsibilities accordingly.
Compensation Committee Interlocks and
Insider Participation
No executive officer of the Company has
served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other
entity, one of whose executive officers served as director of the Company during the fiscal year ended March 31, 2016.
EXECUTIVE COMPENSATION
Summary
Compensation Table
The following table sets forth information
concerning the total compensation paid or accrued by us during the last two fiscal years indicated to (i) all individuals that
served as our or Akoustis’ principal executive officer or acted in a similar capacity for us at any time during the most
recent fiscal year indicated; (ii) the two most highly compensated executive officers who were serving as executive officers of
us or Akoustis at the end of the most recent fiscal year indicated; and (iii) up to two additional individuals for whom disclosure
would have been provided pursuant to clause (ii) above but for the fact that the individual was not serving as an executive officer
of ours or Akoustis at the end of the most recent fiscal year indicated. The compensation described in the table does not include
medical, group life insurance, or other benefits which are available generally to all of our salaried employees.
Name & Principal
Position
|
|
Fiscal Year
ended
July31,
|
|
Salary
($)
|
|
|
Bonus
($) (1)
|
|
|
Stock
Awards
($) (2)
|
|
|
Option
Awards
($) (2)
|
|
|
Non-
Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation($)(4)
|
|
|
Total ($)
|
|
Ivan Krikun,
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CEO (3)
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Shealy,
|
|
2016
|
|
|
150,000
|
|
|
|
30,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,309
|
|
|
|
207,309
|
|
CEO
|
|
2015
|
|
|
130,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,434
|
|
|
|
143,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Boomgarden.
|
|
2016
|
|
|
117,692
|
|
|
|
13,600
|
|
|
|
67,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,334
|
|
|
|
235,076
|
|
VP of Operations
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,384
|
|
|
|
14,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cindy Payne,
|
|
2016
|
|
|
114,327
|
|
|
|
13,775
|
|
|
|
217,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,052
|
|
|
|
357,654
|
|
Chief Financial Officer
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dave Aichele,
|
|
2016
|
|
|
121,876
|
|
|
|
13,600
|
|
|
|
165,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,187
|
|
|
|
323,663
|
|
VP of Business Development
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Bonus expense represents amount accrued as of March 31, 2016, for the fiscal year 2016 bonus period. The amounts were paid in May 2016.
|
|
(2)
|
See Note 10 to the Consolidated Financial Statements included in this Report for a discussion of the assumptions made in the valuation of stock awards and option awards.
|
|
(3)
|
On May 22, 2015, Ivan Krikun resigned as our CEO and director.
|
|
(4)
|
Other compensation is broken down by each executive below:
|
Name & Principal
Position
|
|
Fiscal Year
ended
July 31,
|
|
|
Healthcare, & Life
Insurance ($) (a)
|
|
|
|
401K
Contribution ($) (b)
|
|
|
|
Contractor
Compensation($)
|
|
|
|
Total ($)
|
|
Ivan Krikun,
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CEO
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Shealy,
|
|
2016
|
|
|
22,232
|
|
|
|
5,077
|
|
|
|
-
|
|
|
|
27,309
|
|
CEO
|
|
2015
|
|
|
12,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Boomgarden,
|
|
2016
|
|
|
18,681
|
|
|
|
4,603
|
|
|
|
13,050
|
|
|
|
36,334
|
|
VP of Operations (c )
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
14,384
|
|
|
|
14,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cindy Payne,
|
|
2016
|
|
|
7,590
|
|
|
|
4,462
|
|
|
|
-
|
|
|
|
12,052
|
|
Chief Financial Officer
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dave Aichele,
|
|
2016
|
|
|
18,584
|
|
|
|
4,603
|
|
|
|
-
|
|
|
|
23,187
|
|
VP of Business Development
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(a)
|
Healthcare costs include employer
paid medical, dental, and vision. Employer paid life insurance is included and was less
than $100.00 annually per executive for the fiscal year ended March 31, 2016.
|
|
(b)
|
Effective June 1, 2015, we established
a 401(k) retirement savings plan, with an employer matching contribution, for all employees.
We have no other plans in place and have never maintained any other plans that provide
for the payment of retirement benefits or benefits that will be paid primarily following
retirement including, but not limited to, tax qualified deferred benefit plans, supplemental
executive retirement plans, tax-qualified deferred contribution plans and nonqualified
deferred contribution plans.
|
|
(c)
|
Mr. Boomgarden performed services
for Akoustis, Inc., under an independent contractor agreement.
|
Except as indicated below, we have no
contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payments to the named executive officers
listed above.
Outstanding Equity Awards at Fiscal
Year-End
We have one compensation plan approved
by our stockholders, the 2015 Plan. See “Market For Common Equity and Related Stockholder Matters—Securities Authorized
for Issuance under Equity Compensation Plans” below for a description of the 2015 Plan.
The following table provides information
about equity awards granted to officers of Akoustis, Inc., who are our Named Executive Officers that were outstanding as of the
end of Akoustis, Inc.’s last fiscal year ended March 31, 2016.
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
securities
underlying
unexercised
options
(#) exercisable
|
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
|
|
Equity
incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
|
|
Options
Exercise
Price ($)
|
|
|
Options
Expiration
Date
|
|
|
Number
of shares
or units
of stock
that have
not vested
(#)
|
|
|
Market
value of
shares of
units of
stock that
have not
vested
($)
|
|
|
Equity
incentive
plan
awards:
Number of
unearned
shares,
units or
other
rights that
have not
vested
(#)
|
|
|
Equity
incentive
plan
awards:
Market or
payout
value of
unearned
shares,
units or
other
rights that
have not
vested
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
Jeffrey Shealy,
CEO (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mark Boomgarden,
VP of Operations (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,682
|
|
|
|
328,490
|
|
|
|
-
|
|
|
|
-
|
|
Dave Aichele,
VP of Business Development (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
232,100
|
|
|
|
-
|
|
|
|
-
|
|
Cindy Payne,
Chief Financial Officer (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,000
|
|
|
|
305,950
|
|
|
|
-
|
|
|
|
-
|
|
(1) Mr. Shealy has no outstanding option
or stock awards.
(2) Reflects stock options and stock awards
granted by Akoustis, Inc. and share value of $2.11 as of March 31, 2016.
Options were granted under our 2015 Plan
following the Merger to each of our four non-employee directors to purchase 40,000 shares of our Common Stock, with an exercise
price of $1.50 per share, vesting in equal annual installments over four years and exercisable until May 22, 2025.
Employment Agreements
On June 15, 2015, we entered into a three-year
employment agreement with our Chief Executive Officer, Jeffrey B. Shealy. After the initial three-year term, the agreement will
be automatically renewed for successive one-year periods unless terminated by either party on at least 30 days’ written
notice prior to the end of the then-current term. Mr. Shealy’s annual base salary is $150,000 and is subject to increase
or decrease on each anniversary as determined by our Board of Directors. Mr. Shealy is eligible, at the discretion of our Board
of Directors, to receive an annual cash bonus of up to 100% of his annual base salary, which may be based on us achieving certain
operational, financial or other milestones (the “Milestones”) that may be established by our Board of Directors. Mr.
Shealy is entitled to receive stock options or other equity incentive awards under the 2015 Plan as and when determined by the
Board, and is entitled to receive perquisites and other fringe benefits that may be provided to, and is eligible to participate
in any other bonus or incentive program established by us, for our executives. Mr. Shealy and his dependents are also entitled
to participate in any of our employee benefit plans subject to the same terms and conditions applicable to other employees. Mr.
Shealy will be entitled to be reimbursed for all reasonable travel, entertainment and other expenses incurred or paid by him in
connection with, or related to, the performance of his duties, responsibilities or services under his employment agreement, in
accordance with policies and procedures, and subject to limitations, adopted by us from time to time.
In the event that Mr. Shealy is terminated
by us without Cause (as defined in his employment agreement) or he resigns for Good Reason (as defined in his employment agreement)
during the term of his employment, Mr. Shealy would be entitled to (x) an amount equal to his annual base salary then in effect
(payable in accordance with the Company’s normal payroll practices) for a period of 24 months commencing on the effective
date of his termination (the “Severance Period”) (in the case of termination by the executive for Good Reason, reduced
by any cash remuneration paid to him because of any other employment or self-employment during the Severance Period), and (y)
if and to the extent the Milestones are achieved for the annual bonus for the year in which the Severance Period commences (or,
in the absence of Milestones, our Board of Directors has, in its sole discretion, otherwise determined an amount of Mr. Shealy’s
annual bonus for such year), an amount equal to such annual bonus pro-rated for the portion of the performance year completed
before Mr. Shealy’s employment terminated, (z) any unvested stock options, restricted stock or similar incentive equity
instruments will vest immediately. For the duration of the Severance Period, Mr. Shealy will also be eligible to participate in
our benefit plans or programs, provided Mr. Shealy was participating in such plan or program immediately prior to the date of
employment termination, to the extent permitted under the terms of such plan or program (collectively, the “Termination
Benefits”). If Mr. Shealy’s employment is terminated during the term by us for Cause, by Mr. Shealy for any reason
other than Good Reason or due to his death, then he will not be entitled to receive the Termination Benefits, and shall only be
entitled to the compensation and benefits which shall have accrued as of the date of such termination (other than with respect
to certain benefits that may be available to Mr. Shealy as a result of a Permanent Disability (as defined in his employment agreement).
On June 15, 2015, we also entered into
an employment agreement with each of David M. Aichele, our Vice President of Business Development, Mark Boomgarden, our Vice President
of Operations, and Cindy C. Payne, our Chief Financial Officer. Each of these employment agreements has substantially the same
terms as that of Mr. Shealy described above, except as follows:
|
|
Term
|
|
Base Salary
|
|
|
Eligible Bonus
% of
Base Salary
|
|
|
Severance
Period
|
David M. Aichele
|
|
2 years
|
|
$
|
136,000
|
|
|
|
50
|
%
|
|
6 months
|
Mark Boomgarden
|
|
2 years
|
|
$
|
136,000
|
|
|
|
50
|
%
|
|
6 months
|
Cindy C. Payne
|
|
2 years
|
|
$
|
145,000
|
|
|
|
50
|
%
|
|
6 months
|
In addition, in accordance with each such
employment agreement, each of these executives received a restricted stock award under our 2015 Equity Incentive Plan (the “2015
Plan”), for the number of shares of the Company’s common stock shown below. These restricted stock awards are subject
to a repurchase option in favor of the Company that lapses over a four-year period, as follows: the repurchase option on 50% of
the shares will lapse at the end of two years from date of issuance, and the repurchase option on 25% of the shares will lapse
at the end of each of the third and fourth years from date of issuance.
|
|
Number of Shares
of
Restricted Stock
|
|
David M. Aichele
|
|
|
110,000
|
|
Mark Boomgarden
|
|
|
38,000
|
|
Cindy C. Payne
|
|
|
145,000
|
|
Under the terms of the 2015 Plan, in the
event of a merger or Change in Control (as defined in the 2015 Plan) of the Company, each outstanding restricted stock award will
be treated as the Administrator (as defined in the 2015 Plan) determines, including that each such award will be assumed or an
equivalent option or right substituted by the successor corporation. The Administrator will not be required to treat all awards
similarly in the transaction. In the event that the successor corporation does not assume or substitute for the award, all restrictions
on the restricted stock will lapse.
Restricted Stock Agreements
Akoustis, Inc., entered into, and upon
the Merger the Company assumed, restricted stock purchase agreements with each of Steve DenBaars, Mark Boomgarden and Arthur Geiss
pursuant to which Akoustis, Inc., issued to each of those individual a number of shares of Akoustis, Inc., Common Stock, which
in the Merger were exchanged for shares of our Common Stock as shown below. The Company has the right to repurchase some or all
of such shares upon termination of the individual’s service with the Company, whether voluntary or involuntary, for 60 months
from the date of termination. 25% of Mr. Geiss’ shares were released from the repurchase option on June 16, 2015, and an
additional 1/48th of the shares shall be released from the repurchase option on the last day of each month thereafter, until all
shares are released from the repurchase option; provided, that such scheduled releases from the repurchase option will immediately
cease as of the termination of service. During the year ended March 31, 2016, the Company amended the original restricted stock
agreements for certain award recipients including Messrs. DenBaars and Boomgarden. According to the amendment, 75% of the shares
as to which the repurchase option had not lapsed as of September 30, 2015, shall be released from the repurchase option on the
third anniversary of the original effective date of the agreement. The remaining 25% of the shares shall be released from the
repurchase option on the fourth anniversary of the original effective date, provided, that such scheduled releases from the repurchase
option will immediately cease as of the termination of service.
The numbers of shares subject to these
repurchase agreements as of July 22, 2016 are:
Steve DenBaars
|
|
|
44,562
|
|
|
|
|
|
|
Mark Boomgarden
|
|
|
115,454
|
|
|
|
|
|
|
Arthur Geiss
|
|
|
13,166
|
|
Director Compensation
We believe that our director compensation
policy aligns the interest of our non-employee directors with that of our shareholders by compensating each such director with
stock option grants. Each director upon commencement of his or her service receives an option to purchase 40,000 shares of Common
Stock, which vests over four years in equal annual installments, subject to continuation of service as a director. Our policy
also is to reimburse these directors for reasonable out-of-pocket expenses related to their role on our board.
The table below summarizes all compensation received by each of the Company’s and Akoustis Technologies,
Inc.’s non-employee directors for services as a director performed during Akoustis Technologies, Inc.’s fiscal year
ended March 31, 2016.
Name
|
|
Fees earned or
paid in cash
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards (3)
($)
|
|
|
Non-equity incentive
plan
compensation
($)
|
|
|
Non-qualified
deferred
compensation
earnings
($)
|
|
|
All other
compensation
($)
|
|
|
Total
($)
|
|
Ivan Krikun (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Lora Shealy (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Arthur E. Geiss (3)
|
|
|
-
|
|
|
|
|
|
|
|
27,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
Jerry D.
Neal (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
Steven P. DenBaars (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
Jeffrey K. McMahon(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,931
|
|
|
(1)
|
Mr. Krikun resigned as a director
of the Company on May 22, 2015.
|
|
(2)
|
On May 22, 2015, Lora Shealy resigned
as a director of Akoustis, Inc. Ms. Shealy received no compensation for services as director
of Akoustis, Inc., but received other compensation for services rendered to Akoustis,
Inc., totaling $13,885.
|
(3)
|
Options to purchase 40,000 shares of our Common Stock were granted under our 2015 Plan following the
Merger to each of our four non-employee directors, with an exercise price of $1.50 per share, vesting in equal annual
installments over four years and exercisable until May 22, 2025. The Company computed the economic benefit of the grant as of
the date of grant utilizing a Black Scholes option-pricing model. The Company utilized the following assumptions: Common
share value based on the fair value of the Company’s Common Stock as of the most recent private offering at the time of
grant, $1.50; an exercise price of $1.50; an expected volatility of 47%; and a discount rate of 1.29%. The grant
date fair value of the award was $111,724.
|
See “—Restricted Stock Agreements”
above for information about the restricted stock purchase agreements between the Company and each of Steve DenBaars and Arthur
Geiss.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance
with SEC rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently
exercisable or which become exercisable within 60 days after July 22, 2016 (the “Determination Date”) are deemed
beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage
of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any
other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole
voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.
The following table sets forth information
with respect to the beneficial ownership of our Common Stock as of the Determination Date by (i) each stockholder known by us
to be the beneficial owner of more than 5% of our Common Stock (our only class of voting securities), (ii) each of our directors
and executive officers, and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except
as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares
of our Common Stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge,
none of the shares listed below are held under a voting trust or similar agreement, except as noted. Other than the Merger, to
our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents,
the operation of which may at a subsequent date result in a change in control of the Company.
The address for each director and executive
officer named in the table is c/o Akoustis Technologies, Inc., 9805 Northcross Center Court, Suite H, Huntersville, NC 28078.
Name and address of beneficial owner
|
|
Amount and
nature of
beneficial
ownership
(1)(2)
|
|
|
Percent
of
class
(3)
|
|
|
|
|
|
|
|
|
Jeffrey B. Shealy, Chief Executive Officer,
Director
|
|
|
3,430,586
|
|
|
|
22.2
|
%
|
David M. Aichele, Vice President of Business Development
(4)
|
|
|
116,250
|
|
|
|
*
|
|
Mark Boomgarden, Vice President of Operations
(5)
|
|
|
223,291
|
|
|
|
1.4
|
%
|
Cindy C. Payne, Chief Financial Officer
(6)
|
|
|
154,375
|
|
|
|
1.0
|
%
|
Steven P. DenBaars, Director
(7)(8)
|
|
|
253,858
|
|
|
|
1.6
|
%
|
Arthur E. Geiss, Director, Co-Chairman of the Board
(7)(9)
|
|
|
44,306
|
|
|
|
*
|
|
Jeffrey K. McMahon, Director
(7)
|
|
|
519,888
|
|
|
|
3.4
|
%
|
Jerry D. Neal, Director, Co-Chairman of the Board
(7)
|
|
|
135,000
|
|
|
|
*
|
|
All directors and executive officers
as a group (8 persons)
|
|
|
4,877,554
|
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
Mark Tompkins
App 1, Via Guidino 23
Lugano 6900, Switzerland
|
|
|
2,385,706
|
|
|
|
15.4
|
%
|
*Less than 1%
|
(1)
|
Unless otherwise indicated in the table,
the address for each person named in the table is c/o Akoustis Technologies, Inc., 9805
Northcross Center Court, Suite H, Huntersville, NC 28078.
|
|
(2)
|
Unless otherwise indicated in the table,
the shares are held directly by the beneficial owner.
|
|
(3)
|
Applicable percentage ownership is
based on 15,465,981 shares of Common Stock outstanding as of the Determination Date,
together with securities exercisable for or convertible into shares of Common Stock within
60 days after the Determination Date, for each shareholder. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or investment power
with respect to securities.
|
|
(4)
|
Includes 110,000 restricted shares
that Mr. Aichele received subject to a repurchase option. See “Executive Compensation—
Employment Agreements.”
|
|
(5)
|
Includes 200,041 restricted shares
that Mr. Boomgarden has received that are subject to repurchase options. See “Executive
Compensation— Employment Agreements” and “Executive Compensation—
Restricted Stock Agreements.”
|
|
(6)
|
Includes 145,000 restricted shares
that Ms. Payne has received that are subject to a repurchase option. See “Executive
Corporation – Employment Agreements.”
|
|
(7)
|
Includes 10,000 shares of Common Stock
issuable upon exercise of an option that vested in May 2016 and is exercisable until
May 22, 2025, but does not include 30,000 shares of Common Stock issuable upon exercise
of an option that vests in equal annual installments over three years commencing May
22, 2017, also exercisable until May 22, 2025.
|
|
(8)
|
Includes 45,911 shares subject to a
repurchase option. See “Executive Compensation— Restricted Stock Agreements.”
|
|
(9)
|
Includes 17,216 shares subject to a
repurchase option. See “Executive Compensation— Restricted Stock Agreements.”
|
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
SEC rules require us to disclose any transaction
or currently proposed transaction in which the Company is a participant and in which any related person has or will have a direct
or indirect material interest involving the lesser of $120,000.00 or one percent (1%) of the average of the Company’s total
assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director,
or holder of 5% or more of the Company’s Common Stock, or an immediate family member of any of those persons.
The descriptions set forth above under
the captions “Description of Business—Organizational History,” “—The 2015 Offering” and “—The
2016 Offering”; “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities—Securities Authorized for Issuance under Equity Compensation Plans,” “—Registration
Rights” and “—Lock-up Agreements and Other Restrictions”, and “Executive Compensation—Director
Compensation” and “—Employment Agreements” are incorporated herein by reference.
Of the $530,000 raised by Akoustis, Inc.,
in June 2014, our CEO, Jeffrey Shealy, was the largest investor at $175,000. Mr. Shealy also purchased $200,000 principal amount
of Akoustis, Inc., convertible notes in March 2015. In addition, Mr. Shealy participated in the 2015 Offering, purchasing 134,000
shares of Common Stock for an aggregate purchase price of $201,000 (of which $200,000 was paid by conversion of the convertible
note). Mr. Shealy also participated in our 2016 Offering, purchasing 93,750 shares of Common Stock for an aggregate purchase price
of $150,000.
Furthermore, a firm owned by our CEO (Raytech,
LLC) loaned Akoustis, Inc., $30,000 to assist in purchase of test and measurement equipment required to evaluate the performance
of our technology demonstrators. The loan was a 12-month simple interest note and was repaid in full in March 2015.
Steven P. DenBaars, Akoustis, Inc.’s
Director since May 12, 2014, and our Director since May 22, 2015, participated in the $530,000 equity financing of Akoustis, Inc.,
in June 2014 by investing $50,000. Prof. DenBaars participated in the 2015 Offering, purchasing 17,000 shares of Common Stock
for an aggregate purchase price of $25,500.
Mark Boomgarden, our Vice President of
Operations since May 18, 2015, participated in the 2015 Offering, purchasing 17,000 shares of Common Stock for an aggregate purchase
price of $25,500 and participated in the 2016 Offering, purchasing 6,250 shares of Common Stock for an aggregate purchase price
of 10,000.
Furthermore, Mark Boomgarden from May
14,
2015 (inception) to May 18, 2016 received payments for consulting services of $27,426 for Akoustis, Inc. under
an independent contractor agreement before becoming an employee on May 18, 2015.
Jeffrey K. McMahon, our Director since
May 22, 2015, participated in the $530,000 equity financing of Akoustis, Inc., in June 2014 by investing $100,000. Mr. McMahon
also purchased $225,000 principal amount of Akoustis, Inc., convertible notes in March 2015. Mr. McMahon, at Akoustis, Inc.’s
request and to qualify Akoustis, Inc. for an NSF matching award in April 2015, purchased 21 shares of Akoustis, Inc.’s Common
Stock pre-Merger (6,806 shares of our Common Stock post-Merger) for an aggregate purchase price of $10,000 paid by partial conversion
of the convertible note. In addition, Mr. McMahon participated in the 2015 Offering, purchasing 144,000 shares of Common Stock
for an aggregate purchase price of $216,000 (of which $215,000 was paid by conversion of the convertible note). Mr. McMahon also
participated in the 2016 Offering, purchasing 35,000 shares of Common Stock for $56,000.
James R. Shealy, brother of our CEO Jeffrey
B. Shealy, participated in the $530,000 equity financing of Akoustis, Inc., in June 2014 by investing $80,000. Prof. Shealy also
purchased $130,000 principal amount of Akoustis, Inc., convertible notes in March 2015. Prof. Shealy participated in the 2015
Offering, purchasing 90,000 shares of Common Stock for an aggregate purchase price of $135,000 (of which $130,000 was paid by
conversion of the convertible note).
Michael J. Shealy, brother of our CEO
Jeffrey B. Shealy, participated in the 2015 Offering, purchasing 100,000 shares of Common Stock for an aggregate purchase price
of $150,000.
Mark Tompkins, who beneficially owned
approximately 15.4% of our Common Stock as of July 22, 2016, participated in the 2015 Offering, purchasing 135,000 shares of
Common Stock for an aggregate purchase price of $202,500 and participated in the 2016 Offering purchasing 250,000 shares of Common
Stock for $400,000. Mr. Tompkins is also a party the Registration Rights Agreement with respect to all of his shares.
Jerry Neal, our Director since May 22,
2015 and Co-Chairman since May 11, 2016 participated in the 2016 Offering, purchasing 125,000 shares of Common Stock for an aggregate
purchase price of $200,000.
Arthur Geiss, our Director since May 22,
2015 and Co-Chairman since May 11, 2016 participated in the 2016 Offering, purchasing 10,000 shares of Common Stock for an aggregate
purchase price of $16,000.
Furthermore, AEG consulting, a firm owned
by Arthur Geiss received $9,462.50 and $3,462.50 for consulting fees for fiscal years ended March 31, 2016 and March 31, 2015,
respectively
Cindy Payne, our Chief Financial Officer
since June 15, 2015, and Dave Aichele, our VP of Business Development since May 6, 2015, participated in the 2016 Offering. Cindy
Payne purchased 9,375 of Common Stock for an aggregate purchase price of $15,000 while Mr. Aichele purchased 6,250 shares of Common
Stock for an aggregate purchase price of $10,000.
In March 2016, the Company purchased inventory
from Big Red LLC (“Big Red”), a company formed by our CEO, Jeff Shealy, Richard Shealy, the brother of the Company’s
CEO, Mark Boomgarden, VP of Operations and Greenstone, LLC. The transaction for $44,000 was executed so that the Company could
pursue commercialization of the amplifier inventory purchased. The Company will utilize this inventory and related technology
to process and sell the amplifiers. Jeff Shealy and Mark Boomgarden assigned their interests in “Big Red” to other
parties in March of 2016.
PLAN OF DISTRIBUTION
The selling stockholders may, from time
to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares
are traded or in private transactions. If the shares of common stock are sold through underwriters, the selling stockholders will
be responsible for underwriting discounts or commissions or agent’s commissions. All selling stockholders who are broker-dealers
are deemed to be underwriters. These sales may be at fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale or at negotiated prices. The selling stockholders may use any one or more of the following
methods when selling shares:
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any national securities exchange or quotation service on which the securities may be listed or quoted
at the time of sale;
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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transactions other than on these exchanges or systems or in the over-the-counter market;
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through the writing of options, whether such options are listed on an options exchange or otherwise;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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broker-dealers may agree with the selling stockholders to sell a specified number of such shares at
a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The selling stockholders may also sell
shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Rule 144 under the Securities
Act, which generally permits the resale, subject to various terms and conditions, of restricted securities after they have been
held for six months will not immediately apply to our common stock because we were at one time designated as a “shell company”
under SEC regulations. Pursuant to Rule 144(i), securities issued by a current or former shell company that otherwise meet the
holding period and other requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year after the
date on which the issuer filed current “Form 10 information” (as defined in Rule 144(i)) with the SEC reflecting that
it ceased being a shell company, and provided that at the time of a proposed sale pursuant to Rule 144, the issuer has satisfied
certain reporting requirements under the Exchange Act. The filing of our Current Report on Form 8-K on May 29, 2015, with the
SEC started the running of such one-year period.
The selling stockholders may also engage
in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may
sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling
stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts
to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types
of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be
deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree
to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities
are imposed on that person under the Securities Act.
In connection with the sale of the shares
of our common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders
may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of
common stock to broker-dealers that in turn may sell such shares.
The selling stockholders may from time
to time pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of our common stock
from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will
be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling stockholders to include the pledgees, transferees or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock
in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial
owners for purposes of this prospectus.
The selling stockholders and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, such broker-dealers
or agents and any profit realized on the resale of the shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement,
if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms
of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting
compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed
brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There
can be no assurance that any selling stockholder will sell any or all of the shares of our common stock registered pursuant to
the registration statement of which this prospectus forms a part.
Each selling stockholder has informed
us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute our common stock.
None of the selling stockholders who are affiliates of broker-dealers, other than the initial purchasers in private transactions,
purchased the shares of common stock outside of the ordinary course of business or, at the time of the purchase of the common
stock, had any agreements, plans or understandings, directly or indirectly, with any person to distribute the securities.
We are required to pay all fees and expenses
incident to the registration of the shares of common stock. Except as provided for indemnification of the selling stockholders,
we are not obligated to pay any of the expenses of any attorney or other advisor engaged by a selling stockholder. We have agreed
to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
If we are notified by any selling stockholder
that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, we will file
a post-effective amendment to the registration statement. If the selling stockholders use this prospectus for any sale of the
shares of our common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of our common stock and activities of the selling stockholders, which may limit the
timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person.
Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in
passive market-making activities with respect to the shares of common stock. Passive market making involves transactions in which
a market maker acts as both our underwriter and as a purchaser of our common stock in the secondary market. All of the foregoing
may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
Once sold under the registration statement
of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our
affiliates.
Our common stock is currently quoted on
OTC Markets and trades below $5.00 per share; therefore, our common stock is considered a “penny stock” and subject
to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded. These regulations
require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market
and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and
receive such purchaser’s written agreement to a transaction prior to sale. These regulations have the effect of limiting
the trading activity of the common stock and reducing the liquidity of an investment in the common stock.
DESCRIPTION OF SECURITIES
We have authorized capital stock consisting
of 300,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of the date of this prospectus, we had 15,465,981
shares of common stock issued and outstanding, and no shares of preferred stock issued and outstanding.
Common Stock
The holders of outstanding shares of common
stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and
in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing
for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation,
dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably
among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims
of creditors. Each outstanding share of common stock is duly and validly issued, fully paid and non-assessable.
Preferred Stock
Shares of preferred stock may be issued
from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined
by our Board of Directors prior to the issuance of any shares thereof. Preferred stock will have such voting powers, full or limited,
or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class
or series of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares
thereof. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding
shares of our capital stock entitled to vote generally in the election of the directors, voting together as a single class, without
a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant
to any preferred stock designation.
While we do not currently have any plans
for the issuance of additional preferred stock, the issuance of such preferred stock could adversely affect the rights of the
holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock on the rights of holders of the common stock until the Board of Directors determines
the specific rights of the holders of the preferred stock; however, these effects may include:
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Restricting dividends on the common stock;
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Diluting the voting power of the common stock;
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Impairing the liquidation rights of the common stock; or
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Delaying or preventing a change in control of the Company without further action by the stockholders.
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Other than in connection with shares of
preferred stock (as explained above), which preferred stock is not currently designated nor contemplated by us, we do not believe
that any provision of our charter or By-Laws would delay, defer or prevent a change in control.
Warrants
The 2015 Placement Agent Warrants entitle
their holders to purchase 324,650 shares of common stock, with a term until June 2020 and an exercise price of $1.50 per share,
and have a “cashless” net exercise option.
The 2016 Placement Agent Warrants entitle
their holders to purchase 153,713 shares of common stock, with a term of April 2021 and an exercise price of $1.60 per share,
and have a “cashless” net exercise option.
All of the outstanding warrants contain
“weighted average” anti-dilution protection in the event that we issue common stock or securities convertible into
or exercisable for shares of common stock at a price lower than the subject warrant’s exercise price, subject to certain
customary exceptions, as well as customary provisions for adjustment in the event of stock splits, subdivision or combination,
mergers, etc.
See “Registration Rights”
below for a description of the registration rights granted to (among others) the holders of the Placement Agent Warrants, which
description is incorporated herein by reference.
The form of the Placement Agent Warrants
is filed as an exhibit to the registration statement of which this prospectus is a part.
Options
Options to purchase 40,000 shares of our
common stock were granted under our 2015 Plan following the Merger to each of our four non-employee directors, with an exercise
price of $1.50 per share, vesting in equal annual installments over four years and exercisable until May 22, 2025.
Other Convertible Securities
As of the date hereof, other than the
securities described above, the Company does not have any outstanding convertible securities.
Registration Rights
2015 Offering.
In connection with
the 2015 Offering, we entered into a Registration Rights Agreement, pursuant to which we agreed to file a registration statement
with the SEC (the “2015 Registration Statement”) covering (a) the shares of Common Stock issued in the 2015 Offering,
(b) the shares of Common Stock issuable upon exercise of the 2015 Placement Agent Warrants, (c) any shares of Common Stock issuable
to investors in the 2015 Offering pursuant to the anti-dilution rights described under “Description of Business—The
2015 Offering” above and (d) 1,863,504 additional shares of Common Stock held by two pre-Merger stockholders (the “Registerable
Shares”). The 2015 Registration Statement was declared effective by the SEC on October 20, 2015.
With respect to (c) above, we registered
1,896,052 shares, which represents a good faith estimate as to the number of shares which may become issuable upon application
of the price-protected anti-dilution provision applicable to the shares referenced in (a) above (being the number of shares that
would become issuable were we to trigger the application of the anti-dilution provision by issuing common stock or common stock
equivalents at a price of $1.00 per share). We cannot predict whether such anti-dilution provision will be triggered or the actual
number of shares which would become issuable were such provision to be triggered. If the anti-dilution provision is triggered
and the shares registered for that purpose are not sufficient to cover the full amount of shares that will be required to be issued,
we will need to file a new registration statement to cover the additional amount.
If (a) the 2015 Registration Statement
ceases for any reason to remain effective or the holders of Registrable Shares are otherwise not permitted to utilize the prospectus
therein to resell the Registrable Shares for a period of more than fifteen consecutive trading days; or (b) the Registrable Shares
are not listed or included for quotation on OTC Markets, Nasdaq, the New York Stock Exchange or NYSE MKT, or trading of the Common
Stock is suspended or halted for more than three consecutive trading days, the Company will make payments to each holder of Registrable
Shares as monetary penalties at a rate equal to 1% of the 2015 Offering Price per 30-day period for each share affected during
the period of such failure; provided, however, that in no event will the aggregate of any such penalties exceed 8% of the 2015
Offering Price per share. No liquidated damages shall accrue after the Registrable Shares may be resold under Rule 144 under the
Securities Act or another exemption from registration under the Securities Act.
We must keep the 2015 Registration Statement
“evergreen” for two (2) years from the date it is declared effective by the SEC or until Rule 144 is available to
the holders of Registrable Shares who are not and have not been affiliates of the Company with respect to all of their Registrable
Shares, whichever is earlier.
The holders of Registrable Shares and
the stockholders of the Company prior to the Merger (but not holders of the shares issued to the stockholders of Akoustis, Inc.,
in consideration for the Merger) were given “piggyback” registration rights for such Registrable Shares with respect
to any registration statement filed by us following the effectiveness of the 2015 Registration Statement that would permit the
inclusion of such shares, subject to customary cutback pro rata in an underwritten offering.
We will have paid or will pay all expenses
in connection with any registration obligation provided in the registration Rights Agreement, including, without limitation, all
registration, filing, stock exchange fees, printing expenses, all fees and expenses of complying with applicable securities laws,
and the fees and disbursements of our counsel and of our independent accountants. Each investor will be responsible for its own
sales commissions, if any, transfer taxes and the expenses of any attorney or other advisor such investor decides to employ.
2016
Offering.
In connection with the 2016 Offering, we entered into a Registration Rights Agreement, pursuant to which we have
agreed that promptly, but no later than 90 calendar days from the final closing of the 2016 Offering, held April 16, 2016, the
Company will file a registration statement with the SEC (the “2016 Registration Statement”) covering the resale of
(a) the shares of Common Stock issued in the 2016 Offering and (b) any shares of Common Stock issuable to investors in the 2015
Offering pursuant to the anti-dilution rights described under “Description of Business—The 2016 Offering” above
(the “Registrable Shares”). With respect to (b) above, we are registering,
in the registration statement of
which this prospectus forms a part,
1,341,186 shares, which represents a good faith estimate as
to the number of shares which may become issuable upon application of the price-protected anti-dilution provision applicable to
the shares referenced in (a) above (being the number of shares that would become issuable were we to trigger the application of
the anti-dilution provision by issuing common stock or common stock equivalents at a price of $1.00 per share). We cannot predict
whether such anti-dilution provision will be triggered or the actual number of shares which would become issuable were such provision
to be triggered. If the anti-dilution provision is triggered and the shares registered for that purpose are not sufficient to
cover the full amount of shares that will be required to be issued, we will need to file a new registration statement to cover
the additional amount.
The Company must use its commercially
reasonable efforts to ensure that such 2016 Registration Statement is declared effective within 180 calendar days after filing
with the SEC. If (a) the Company is late in filing the 2016 Registration Statement, (b) the 2016 Registration Statement is not
declared effective within 180 days after the final closing of the 2016 Offering, (c) the 2016 Registration Statement ceases for
any reason to remain effective or the holders of Registrable Shares are otherwise not permitted to utilize the prospectus therein
to resell the Registrable Shares for a period of more than fifteen consecutive trading days; or (d) the Registrable Shares are
not listed or included for quotation on OTC Markets, Nasdaq, the New York Stock Exchange or NYSE MKT, or trading of the Common
Stock is suspended or halted for more than three consecutive trading days, the Company will make payments to each holder of Registrable
Shares as monetary penalties at a rate equal to 12% of the 2016 Offering Price per annum for each share affected during the period
of such failure; provided, however, that in no event will the aggregate of any such penalties exceed 8% of the 2016 Offering Price
per share. No liquidated damages shall accrue with respect to any Registrable Shares removed from the 2016 Registration Statement
in response to a comment from the staff of the SEC limiting the number of shares of Common Stock which may be included in the
2016 Registration Statement (a “Cutback Comment”) or after the shares may be resold under Rule 144 under the Securities
Act or another exemption from registration under the Securities Act.
The Company must keep the 2016 Registration
Statement effective until the earlier of (i) two years from the date it is declared effective by the SEC and (ii) the date Rule
144 is available to the holders of Registrable Shares with respect to all of their Registrable Shares without volume or other
limitations.
The holders of Registrable Shares (including
any shares of Common Stock removed from the 2016 Registration Statement as a result of a Cutback Comment) will have “piggyback”
registration rights for such Registrable Shares with respect to up to two registration statements filed by the Company following
the effectiveness of the 2016 Registration Statement that would permit the inclusion of such shares, subject to customary cutback
pro rata in an underwritten offering.
We will pay all expenses in connection
with any registration obligation provided in the registration Rights Agreement, including, without limitation, all registration,
filing, stock exchange fees, printing expenses, all fees and expenses of complying with applicable securities laws, and the fees
and disbursements of our counsel and of our independent accountants. Each investor will be responsible for its own sales commissions,
if any, transfer taxes and the expenses of any attorney or other advisor such investor decides to employ.
The Registration Rights Agreements referred
to above are filed as exhibits to the registration statement of which this prospectus is a part.
Lock-up Agreements and Other Restrictions
In connection with the Merger, each of
our executive officers and directors, and each of the stockholders of Akoustis, Inc., who received shares of our Common Stock
in the Merger (each a “Restricted Holder”, and, collectively, the “Restricted Holders”), holding at that
date in the aggregate 5,734,006 shares of our Common Stock, entered into agreements (the “Lock-Up Agreements”), whereby
they are restricted for a period of 24 months after the Merger from certain sales or dispositions of our Common Stock held by
them immediately after the Merger, except in certain limited circumstances (the “Lock-Up”).
In addition, each Restricted Holder has
agreed in the Lock-Up Agreement that it will not, for a period of 24 months following the Closing Date, directly or indirectly,
effect or agree to effect any short sale (as defined in Rule 200 under Regulation SHO of the Exchange Act), whether or not against
the box, establish any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect
to the Common Stock, borrow or pre-borrow any shares of Common Stock, or grant any other right (including, without limitation,
any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derives
any significant part of its value from the Common Stock or otherwise seek to hedge its position in the Common Stock.
Transfer Agent
The transfer agent for our common stock
is Globex Transfer, LLC. The transfer agent’s address is 780 Deltona Blvd., Suite 202, Deltona, FL 32725 and its telephone
number is 813-344-4490.
Anti-Takeover Effects of Provisions
of Nevada State Law
We may in the future become subject to
Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders
of record, at least 100 of whom are residents of Nevada, and if the corporation does business in Nevada, including through an
affiliated corporation. This control share law may have the effect of discouraging corporate takeovers. The Company currently
has fewer than 100 stockholders of record who are residents of Nevada and does not do business in Nevada.
The control share law focuses on the acquisition
of a “controlling interest,” which means the ownership of outstanding voting shares that would be sufficient, but
for the operation of the control share law, to enable the acquiring person to exercise the following proportions of the voting
power of the corporation in the election of directors: (1) one-fifth or more but less than one-third; (2) one-third or more but
less than a majority; or (3) a majority or more. The ability to exercise this voting power may be direct or indirect, as well
as individual or in association with others.
The effect of the control share law is
that an acquiring person, and those acting in association with that person, will obtain only such voting rights in the control
shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders.
The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no
authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the
stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent
non-voting shares. The acquiring person is free to sell the shares to others. If the buyer or buyers of those shares themselves
do not acquire a controlling interest, the shares are not governed by the control share law any longer.
If control shares are accorded full voting
rights and the acquiring person has acquired control shares with a majority or more of the voting power, a stockholder of record,
other than the acquiring person, who did not vote in favor of approval of voting rights for the control shares, is entitled to
demand fair value for such stockholder’s shares.
In addition to the control share law,
Nevada has a business combination law, which prohibits certain business combinations between Nevada corporations and “interested
stockholders” for two years after the interested stockholder first becomes an interested stockholder, unless (a) the corporation’s
board of directors approves the combination in advance or (b) the corporation’s board of directors and at least 60% of the
corporation’s disinterested stockholders approve the combination at an annual or special meeting. For purposes of Nevada
law, an interested stockholder is any person who is: (a) the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the outstanding voting shares of the corporation, or (b) an affiliate or associate of the corporation and at any time
within the previous two years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding
shares of the corporation. The definition of “business combination” contained in the statute is sufficiently broad
to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance
the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business
combination law is to potentially discourage a party interested in taking control of the Company from doing so if it cannot obtain
the approval of our board of directors.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Effective as of May 22, 2015, we dismissed
KLJ & Associates, LLP (“KLJ”) as our independent registered public accounting firm. Our Board of Directors approved
the dismissal of KLJ, and approved the engagement of Marcum LLP as our independent registered public accounting firm.
None of the reports of KLJ on our financial
statements for the single completed fiscal year since our inception or any subsequent interim period contained an adverse opinion
or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that our
audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2014, and our audited
financial statements for the period April 10, 2013 (date of inception) to July 31, 2013, contained in our initial Registration
Statement on Form S-1, both filed with the Securities and Exchange Commission, included a going concern qualification in the report
of KLJ thereon.
During the Company’s fiscal year
ended July 31, 2014 and the period April 10, 2013 (date of inception) to July 31, 2013, and the subsequent interim periods preceding
their dismissal, there were no disagreements with KLJ, whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of KLJ, would have
caused them to make reference to the subject matter of the disagreement in connection with their report on the Company’s
financial statements.
During the two most recent fiscal years
and the interim periods preceding the engagement, and through the date of this prospectus, neither the Company nor anyone on its
behalf has previously consulted with Marcum LLP regarding either (a) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written
report was provided nor oral advice was provided to us that Marcum LLP concluded was an important factor considered by us in reaching
a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was either the subject of a disagreement
(as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions thereto) or a reportable event (as described
in paragraph 304(a)(1)(v)) of Regulation S-K).
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Under the Nevada Revised Statutes, our
directors and officers are not individually liable to us or our stockholders for any damages as a result of any act or failure
to act in their capacity as an officer or director unless it is proven that:
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His or her act or failure to act constituted a breach of his or her fiduciary duty as a director or officer; and
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His or her breach of these duties involved intentional misconduct, fraud or a knowing violation of law.
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Nevada law allows corporations to provide
broad indemnification to its officers and directors. At the present time, our Articles of Incorporation and Bylaws
also provide for broad indemnification of our current and former directors, trustees, officers, employees and other agents.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that
in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the common stock offered
hereby will be passed upon for us by CKR Law LLP, 1330 Avenue of the Americas, 14
th
Floor, New York, NY 10019 (“CKR”).
CKR is counsel to us and receives legal fees in accordance with an executed retainer agreement.
EXPERTS
The consolidated financial statements of
Akoustis Technologies, Inc. as of March 31, 2016 and 2015 and for the fiscal year ended March 31, 2016, and the period from May
12, 2014 (inception) through March 31, 2015, included in this prospectus and registration statement, have been audited by Marcum
LLP, independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph
relating to substantial doubt about the ability of Akoustis Technologies, Inc. to continue as a going concern as described in Note
2 to the consolidated financial statements) appearing elsewhere herein and are included in reliance on such report given upon such
firm’s authority as an expert in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports,
current reports and other information with the SEC. You may read or obtain a copy of these reports at the SEC’s
public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation
of the public reference room and their copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains registration statements, reports, proxy information statements and other information regarding registrants that
file electronically with the SEC. The address of the website is http://www.sec.gov.
We have filed with the SEC a Registration
Statement on Form S-1 under the Securities Act to register the shares offered by this prospectus. The term “registration
statement” means the original registration statement and any and all amendments thereto, including the schedules and exhibits
to the original registration statement or any amendment. This prospectus is part of that registration statement. This
prospectus does not contain all of the information set forth in the registration statement or the exhibits to the registration
statement. For further information with respect to us and the shares we are offering pursuant to this prospectus, you
should refer to the registration statement and its exhibits. Statements contained in this prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily complete, and you should refer to the copy of that
contract or other documents filed as an exhibit to the registration statement. You may read or obtain a copy of the
registration statement at the SEC’s public reference facilities and Internet site referred to above.
AKOUSTIS TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Akoustis Technologies, Inc.
We have audited the accompanying consolidated
balance sheets of Akoustis Technologies, Inc. and its subsidiary (the “Company”) as of March 31, 2016 and 2015, and
the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended March
31, 2016 and for the period from May 12, 2014 (inception) through March 31, 2015. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Akoustis Technologies,
Inc. and its subsidiary, as of March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for
the year ended March 31, 2016 and for the period from May 12, 2014 (inception) through March 31, 2015 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has not generated any revenue, and has incurred losses since inception. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters
are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Marcum LLP
|
|
|
|
Marcum
llp
|
|
New York, NY
|
|
June 29, 2016
|
|
Akoustis Technologies, Inc.
(Formerly known as Danlax, Corp.)
Consolidated Balance Sheets
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,730,105
|
|
|
$
|
687,739
|
|
Inventory
|
|
|
43,544
|
|
|
|
30,521
|
|
Prepaid expenses
|
|
|
59,461
|
|
|
|
19,000
|
|
Total current assets
|
|
|
2,833,110
|
|
|
|
737,260
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
182,910
|
|
|
|
65,512
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
|
60,649
|
|
|
|
26,966
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
10,715
|
|
|
|
2,715
|
|
Total Assets
|
|
$
|
3,087,384
|
|
|
$
|
832,453
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
367,290
|
|
|
$
|
58,439
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
655,000
|
|
Total current liabilities
|
|
|
367,290
|
|
|
|
713,439
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
313,709
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
680,999
|
|
|
|
713,439
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.001: 10,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 300,000,000 shares
authorized; 13,615,440 and 5,493,200 shares issued and outstanding at March 31, 2016 and 2015, respectively
|
|
|
13,615
|
|
|
|
5,493
|
|
Additional paid in capital
|
|
|
6,549,946
|
|
|
|
559,870
|
|
Accumulated deficit
|
|
|
(4,157,176
|
)
|
|
|
(446,349
|
)
|
Total Stockholders' Equity
|
|
|
2,406,385
|
|
|
|
119,014
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
3,087,384
|
|
|
$
|
832,453
|
|
See accompanying notes to the consolidated
financial statements
Akoustis Technologies, Inc.
(Formerly known as Danlax, Corp.)
Consolidated Statements of Operations
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
May 12, 2014 (Inception)
|
|
|
|
For the Year Ended
|
|
|
through
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,222,194
|
|
|
|
244,635
|
|
General and administrative expenses
|
|
|
2,647,800
|
|
|
|
339,214
|
|
Total operating expenses
|
|
|
3,869,994
|
|
|
|
583,849
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,869,994
|
)
|
|
|
(583,849
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Grant income
|
|
|
264,333
|
|
|
|
137,500
|
|
Other income
|
|
|
500
|
|
|
|
-
|
|
Interest income
|
|
|
1,328
|
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
(106,994
|
)
|
|
|
-
|
|
Total other income
|
|
|
159,167
|
|
|
|
137,500
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,710,827
|
)
|
|
$
|
(446,349
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.32
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
and diluted
|
|
|
11,702,313
|
|
|
|
5,493,200
|
|
See accompanying notes to the consolidated
financial statements
Akoustis Technologies, Inc.
(Formerly known as Danlax, Corp.)
Consolidated Statement of Changes in
Stockholders' Equity
For the Period from May 12, 2014 (Inception)
through March 31, 2016
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid In Capital
|
|
|
Deficit
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 12, 2014 (Inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to founders
|
|
|
3,017,203
|
|
|
|
3,016
|
|
|
|
(3,015
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
134,504
|
|
|
|
135
|
|
|
|
34,865
|
|
|
|
-
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares issued for cash
|
|
|
1,717,635
|
|
|
|
1,718
|
|
|
|
528,282
|
|
|
|
-
|
|
|
|
530,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
623,858
|
|
|
|
624
|
|
|
|
(262
|
)
|
|
|
-
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period May 12, 2014 (Inception) to March 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(446,349
|
)
|
|
|
(446,349
|
)
|
Balance, March 31, 2015
|
|
|
5,493,200
|
|
|
|
5,493
|
|
|
|
559,870
|
|
|
|
(446,349
|
)
|
|
|
119,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, net of issuance costs
|
|
|
3,856,229
|
|
|
|
3,856
|
|
|
|
5,007,458
|
|
|
|
-
|
|
|
|
5,011,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued to underwriter
|
|
|
-
|
|
|
|
-
|
|
|
|
(206,715
|
)
|
|
|
-
|
|
|
|
(206,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of notes
|
|
|
436,806
|
|
|
|
437
|
|
|
|
654,563
|
|
|
|
-
|
|
|
|
655,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
3,000,005
|
|
|
|
3,000
|
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
829,200
|
|
|
|
829
|
|
|
|
537,770
|
|
|
|
-
|
|
|
|
538,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended March 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,710,827
|
)
|
|
|
(3,710,827
|
)
|
Balance, March 31, 2016
|
|
|
13,615,440
|
|
|
$
|
13,615
|
|
|
$
|
6,549,946
|
|
|
$
|
(4,157,176
|
)
|
|
$
|
2,406,385
|
|
See accompanying notes to the consolidated
financial statements
Akoustis Technologies, Inc.
(Formerly known as Danlax, Corp.)
Consolidated Statements of Cash Flows
|
|
|
|
|
For the Period from
|
|
|
|
For the Year Ended
|
|
|
May 12, 2014 (Inception) through
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,710,827
|
)
|
|
$
|
(446,349
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26,035
|
|
|
|
5,675
|
|
Amortization of intangibles
|
|
|
2,714
|
|
|
|
1,044
|
|
Share-based compensation
|
|
|
639,644
|
|
|
|
6,219
|
|
Change in fair value of derivative liabilities
|
|
|
106,994
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(13,023
|
)
|
|
|
(30,521
|
)
|
Prepaid expenses
|
|
|
(40,461
|
)
|
|
|
(19,000
|
)
|
Other assets
|
|
|
(8,000
|
)
|
|
|
(2,715
|
)
|
Accounts payable and accrued expenses
|
|
|
207,806
|
|
|
|
52,582
|
|
Net Cash Used In Operating Activities
|
|
|
(2,789,118
|
)
|
|
|
(433,065
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid for machinery and equipment
|
|
|
(143,433
|
)
|
|
|
(71,187
|
)
|
Cash paid for intangibles
|
|
|
(36,397
|
)
|
|
|
(28,010
|
)
|
Net Cash Used In Investing Activities
|
|
|
(179,830
|
)
|
|
|
(99,197
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings from promissory note
|
|
|
-
|
|
|
|
30,000
|
|
Repayment of promissory note
|
|
|
-
|
|
|
|
(30,000
|
)
|
Proceeds from issuance of common stock
|
|
|
5,011,314
|
|
|
|
35,001
|
|
Proceeds from issuance of preferred stock
|
|
|
-
|
|
|
|
530,000
|
|
Proceeds received from convertible note
|
|
|
-
|
|
|
|
655,000
|
|
Net Cash Provided By Financing
Activities
|
|
|
5,011,314
|
|
|
|
1,220,001
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash
|
|
|
2,042,366
|
|
|
|
687,739
|
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of Period
|
|
|
687,739
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash - End of Period
|
|
$
|
2,730,105
|
|
|
$
|
687,739
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
|
|
$
|
-
|
|
|
$
|
984
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation payable
|
|
$
|
101,045
|
|
|
$
|
5,857
|
|
Warrants issued for stock issuance costs
|
|
$
|
206,715
|
|
|
$
|
-
|
|
Conversion of convertible notes into common stock
|
|
$
|
655,000
|
|
|
$
|
-
|
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See accompanying notes to the consolidated
financial statements
AKOUSTIS TECHNOLOGIES,
INC.
(FORMERLY KNOWN
AS DANLAX CORP.)
Notes to the Consolidated
Financial Statements
March 31, 2016
Note 1. Organization
Akoustis Technologies, Inc. (formerly
known as Danlax, Corp.) (“the Company”) was incorporated under the laws of the State of Nevada, U.S. on April 10,
2013. The Company operates in the telecommunications and fiber optics sector and is based in Huntersville, North Carolina. The
mission of the Company is to commercialize and manufacture its patent-pending Bulk ONE™ acoustic wave technology to address
the critical frequency-selectivity requirements in today’s mobile smartphones – improving the efficiency and signal
quality of mobile wireless devices and enabling The Internet of Things.
The Merger
On May 22, 2015, Akoustis Acquisition
Corp., the Company’s wholly owned subsidiary, a corporation formed in the State of Delaware on May 15, 2015 (“Acquisition
Sub”) merged (the “Merger”) with and into Akoustis, Inc., a corporation incorporated in the State of Delaware
on May 12, 2014. Akoustis, Inc., was the surviving corporation in the Merger and became a wholly owned subsidiary of the Company.
All of the outstanding stock of Akoustis, Inc., was converted into shares of the Company’s Common Stock, as described in
more detail below.
At the closing of the Merger, each of
the 11,671 shares of Common Stock and the 5,300 shares of preferred stock of Akoustis, Inc. issued and outstanding immediately
prior to the closing of the Merger was exchanged for 324.082 shares of the Company’s Common Stock. As a result, an aggregate
of 5,500,006 shares of the Company’s Common Stock were issued to the holders of Akoustis Inc. stock.
In connection with the Merger and pursuant
to a Split-Off Agreement, the Company transferred all pre-Merger assets and liabilities to the Company’s pre-Merger majority
stockholder, in exchange for the surrender by him and cancellation of 9,854,019 shares of the Company’s Common Stock, resulting
in 3,000,005 shares of the Company’s Common Stock outstanding at the time of the Merger. These cancelled shares will resume
the status of authorized but unissued shares of the Company’s Common Stock.
As a result of the Merger and Split-Off,
the Company discontinued its pre-Merger business and acquired the business of Akoustis, Inc., and will continue the existing business
operations of Akoustis, Inc.
The Merger was accounted for as a “reverse
merger,” and Akoustis, Inc., was deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and
liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those
of Akoustis, Inc. and will be recorded at the historical cost basis and the consolidated financial statements after completion
of the Merger will include the assets and liabilities of Akoustis, Inc., historical operations of the Company, and operations
of the Company and its subsidiaries from the closing date of the Merger. As a result of the issuance of the shares of the Company’s
Common Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger.
The Merger is intended to be treated as a tax-free exchange under Section 368(a) of the Internal Revenue Code of 1986, as amended.
All historical share amounts of the accounting acquirer were retrospectively recast to reflect the share exchange.
Also on May 22, 2015, the Company changed
its fiscal year from a fiscal year ending on July 31 of each year to one ending on March 31 of each year, which is the fiscal
year end of Akoustis, Inc.
Since inception through March 31, 2016,
the Company has not generated any revenue from operations and has accumulated losses of $4,157,176.
The Financing
On May 22, 2015, concurrently with the
closing of the Merger, and as a condition to the Merger, the Company held a closing on a private placement offering (the “2015
Offering”) in which the Company sold 3,101,104 shares of its Common Stock, at a purchase price of $1.50 per share. On June
10, 2015, the Company completed a second and final closing of the private placement offering in which the Company sold an additional
261,000 shares of Common Stock. In total, the Company sold an aggregate of 3,362,104 shares of Common Stock. The aggregate gross
proceeds from the 2015 Offering was $5,043,206 (before deducting placement agent fees and offering expenses of $801,579).
As a result of the foregoing, the Placement
Agents and their sub-agents were paid aggregate commissions of $486,976 and were issued 2015 Placement Agent Warrants to purchase
an aggregate of 324,650 shares of our Common Stock. We were also required to reimburse the Placement Agents approximately $77,150
of legal expenses incurred in connection with the 2015 Offering.
During April and May 2015, $655,000 principal
amount of convertible notes of Akoustis, Inc., were converted into 436,806 shares of Common Stock of the Company on the same terms
as the other investors in the 2015 Offering at a conversion price of $1.50 per share.
On August 6, 2015, the Company filed with
the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 for the public offering by
selling stockholders of up to 7,876,310 shares of its Common Stock (which includes outstanding shares of Common Stock, shares
underlying warrants and shares that may become issuable pursuant to an anti-dilution provision applicable to certain of the outstanding
shares) pursuant to registration rights granted in connection with the May-June private placement. The Form S-1 was declared effective
by the SEC on October 20, 2015.
The 2016 Offering
On March 10, 2016, the Company held a
closing of a private placement offering (the “March 2016 Offering”) in which it sold 494,125 shares of Common Stock
at a fixed purchase price of $1.60 per share (the “2016 Offering Price”), for aggregate gross proceeds of $790,600
(before deducting legal expenses of the March 2016 Offering).
On April 14, 2016, the Company held closings
of a private placement offering (the “April 2016 Offering”) in which the Company sold 1,741,185 shares of Common Stock
at a fixed purchase price of $1.60 per share (the “2016 Offering Price”), for aggregate gross proceeds of $2,785,896
(before deducting expenses for legal services and agent commissions of the April 2016 Offering).
Investors in the shares were given anti-dilution
protection with respect to the shares of Common Stock sold in the April 2016 Offering such that if, during the period from the
closing of the April 2016 Offering until 90 days after the date on which the registration statement that the Company is required
to file under a Registration Rights Agreement with the investors is declared effective by the SEC, the Company shall issue additional
shares of Common Stock or Common Stock equivalents (subject to customary exceptions, including but not limited to issuances of
awards under the Company’s 2015 Equity Incentive Plan and certain issuances of securities in connection with credit arrangements,
equipment financings, lease arrangements or similar transactions) for a consideration per share less than the 2016 Offering Price
(as adjusted for any subsequent stock dividend, stock split, distribution, recapitalization, reclassification, reorganization
or similar event) (the “Lower Price”), each such investor will be entitled to receive from the Company additional
shares of Common Stock in an amount such that, when added to the number of shares of Common Stock initially purchased by such
investor, will equal the number of shares of Common Stock that such investor’s Offering subscription amount would have purchased
at the Lower Price.
In connection with the April 2016 Offering,
the Company agreed to pay the Placement Agents a cash commission of 8% of the gross proceeds raised from investors first contacted
by the Placement Agents in the 2016 Offering. In addition, the Placement Agents received warrants to purchase a number of shares
of Common Stock equal to 10% of the number of shares of Common Stock sold in the April 2016 Offering, with a term of five (5)
years and an exercise price of $1.60 per share (the “2016 Placement Agent Warrants”). Any sub-agent of the Placement
Agents that introduced investors to the 2016 April Offering was entitled to share in the cash fees and warrants attributable to
those investors as described above.
As a result of the foregoing, the Placement
Agents and their sub-agents were paid an aggregate commission of $196,752 and were issued 2016 Placement Agent Warrants to purchase
an aggregate of 153,713 shares of Common Stock. The Company was also required to reimburse the Placement Agents approximately
$17,500 of legal expenses incurred in connection with the 2016 Offering, of which $7,500 was paid by the issuance of 4,690 shares
of Common Stock (valued at the 2016 Offering Price).
Note 2. Going Concern and
Management Plans
The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As of March 31, 2016, the Company had a working capital of $2,465,820 and an accumulated
deficit of $4,157,176. The Company has not generated any revenues from operations and incurred net losses since inception. As
of March 31, 2016, the Company had cash and cash equivalents of $2,730,105. The Company estimates the $4.3 million of cash and
cash equivalents as of June 27, 2016 and the future receipts from National Science Foundation/Small Business Innovation Research
(“NSF/SBIR”) grants already awarded will be sufficient to fund its operations through March 31, 2017. In order to fund
operations past that date, we will need to raise additional capital, through the sale of additional equity securities, through
additional grants, or otherwise, to support our future operations. There is no assurance that the Company’s projections
and estimates are accurate. Although the Company is actively managing and controlling the Company’s cash outflows to
mitigate these risks, these matters raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset
amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s primary sources of
operating funds since inception have been equity and note financings and grants. The Company intends to raise additional capital
through private debt and equity investors in order to accomplish its business plan objectives and is continuing its efforts to
secure additional funds through debt or equity instruments and grants. Management believes that it will be successful in obtaining
additional financing based on its history of raising funds; however, no assurance can be provided that the Company will be able
to do so. There is no assurance that any funds it raises will be sufficient to enable the Company to attain profitable operations
or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations
and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations.
There can be no assurance that such a plan will be successful.
Note 3. Summary of significant accounting policies
Basis of presentation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying 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.
Use of estimates and assumptions
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts
of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates
for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or
operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements
were:
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(1)
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Fair value of long–lived
assets:
Fair value is generally determined using the asset’s expected
future discounted cash flows or market value, if readily determinable. If long–lived
assets are determined to be recoverable, but the newly determined remaining estimated
useful lives are shorter than originally estimated, the net book values of the long–lived
assets are depreciated over the newly determined remaining estimated useful lives. The
Company considers the following to be some examples of important indicators that may
trigger an impairment review: (i) significant under–performance or losses of assets
relative to expected historical or projected future operating results; (ii) significant
changes in the manner or use of assets or in the Company’s overall strategy with
respect to the manner or use of the acquired assets or changes in the Company’s
overall business strategy; (iii) significant negative industry or economic trends; (iv)
increased competitive pressures; (v) a significant decline in the Company’s stock
price for a sustained period of time; and (vi) regulatory changes. The Company evaluates
acquired assets for potential impairment indicators at least annually and more frequently
upon the occurrence of such events.
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(2)
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Valuation allowance for deferred
tax assets:
Management assumes that the realization of the Company’s net
deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards
for Federal income tax purposes that may be offset against future taxable income was
not considered more likely than not and accordingly, the potential tax benefits of the
net loss carry–forwards are offset by a full valuation allowance. Management made
this assumption based on (a) the Company has incurred a loss, (b) general economic conditions,
and (c) other factors.
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(3)
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Estimates and assumptions
used in valuation of equity instruments:
Management estimates expected term
of share options and similar instruments, expected volatility of the Company’s
common shares and the method used to estimate it, expected annual rate of quarterly dividends,
and risk free rate(s) to value share options and similar instruments.
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(4)
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Estimates and assumptions
used in valuation of derivative liability:
Management utilizes a binomial option
pricing model to estimate the fair value of derivative liabilities. The model includes
subjective assumptions that can materially affect the fair value estimates.
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These significant accounting estimates
or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions,
and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on various
assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to be cash equivalents. As of March 31, 2016
and 2015, the Company had cash and cash equivalents of $2,730,105 and $687,739, respectively. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash deposits. The Company maintains its cash in institutions
insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, the Company’s cash and cash equivalent
balances may be uninsured or in amounts that exceed the FDIC insurance limits.
Inventory
Inventory is stated at lower of cost or
market using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following at March 31, 2016 and March
31, 2015:
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March 31, 2016
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March 31, 2015
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Finished goods held for resale
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$
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43,544
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$
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Raw materials
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30,521
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43,544
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30,521
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Property and equipment, net
Property and equipment are stated at cost
less accumulated depreciation. Depreciation is calculated using the straight–line method on the various asset classes over
their estimated useful lives, which range from three to ten years. Expenditures for maintenance and repairs, which do not extend
the economic useful life of the related assets, are charged to operations as incurred.
Intangible assets, net
Intangible assets consist of patents and
trademarks. Applicable long–lived assets are amortized or depreciated over the shorter of their estimated useful lives,
the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates
of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s
judgment. Patents are amortized on the straight-line method over their useful lives of 15 years.
Impairment of Long-Lived Assets
The Company assesses the recoverability
of its long-lived assets, including property and equipment, when there are indications that the assets might be impaired. When
evaluating assets for potential impairment, the Company compares the carrying value of the asset to its estimated undiscounted
future cash flows. If an asset’s carrying value exceeds such estimated undiscounted cash flows, the Company records
an impairment charge for the difference between the carrying amount of the asset and its fair value.
Based on its assessments, the Company
did not record any impairment charges for the year ended March 31, 2016 and the period May 12, 2014 (Inception) through March
31, 2015.
Fair Value of Financial Instruments
The carrying amounts of cash and cash
equivalents, accounts payable, accrued expenses, and convertible notes payable approximate fair value due to the short-term nature
of these instruments.
The Company measures the fair value of
financial assets and liabilities based on the guidance of ASC 820, “Fair Value Measurements and Disclosures,” which
defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
Fair value measurements are categorized
using a valuation hierarchy for disclosure of the inputs used to measure fair value, which prioritize the inputs into three broad
levels:
Level 1
- Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis.
Level 2
- Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable
as of the reported date, and include those financial instruments that are valued using models or other valuation methodologies.
Level 3
- Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used
with internally developed methodologies that result in management’s best estimate of fair value.
Derivative Liability
The Company evaluates its convertible
debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts
qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB
Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is
marked-to-market each balance sheet date and recorded as either an asset or a liability. The change in fair value is recorded
in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative
instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair
value is reclassified to equity.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected
within 12 months of the balance sheet date.
The Company adopted Section 815-40-15
of the FASB Accounting Standards Codification (“Section 815-40-15”)
to determine whether an instrument
(or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should
use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company utilizes a binomial option
pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance
sheet date. The Company records the change in the fair value of the derivative as other income or expense in the consolidated
statements of operations.
Grant income
During the year ended March 31, 2016 and
the period from May 12, 2014 (inception) through March 31, 2015, the Company received grant funds of $264,333 and $137,500, respectively.
All but $67,000 of those funds were received from the National Science Foundation (the “NSF”) in order to fund future
research and development. The remaining $67,000 was received from the North Carolina NSF Matching grant The Company recognizes
nonrefundable grant revenue when it is received and reports this revenue as “Grant income” on the consolidated statements
of operations.
Research and Development
Research and development expenses are
charged to operations as incurred.
Advertising and marketing costs
The Company expenses advertising and marketing
costs as incurred. These amounts were immaterial for the periods ended March 31, 2016 and 2015.
Equity–based compensation
The Company recognizes compensation expense
for all equity–based payments in accordance with ASC 718 “
Compensation – Stock Compensation
". Under
fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate
and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock awards are granted at
the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite
service periods, typically over a five-year period (vesting on a straight–line basis). The fair value of a stock award is
equal to the fair market value of a share of Company stock on the grant date.
The fair value of an option award is estimated
on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires
the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industry over the
expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded
risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared
any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The
expected forfeiture rate is estimated based on management’s best estimate.
Determining the appropriate fair value
model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described
above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best
estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change
and the Company uses different assumptions, our equity–based compensation could be materially different in the future. In
addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected
to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the equity–based compensation
could be significantly different from what the Company has recorded in the current period.
The Company accounts for share–based
payments granted to non–employees in accordance with ASC 505-40, “
Equity Based Payments to Non–Employees
”.
The Company determines the fair value of the stock–based payment as either the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments
issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date
at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which
the counterparty’s performance is complete. The fair value of the equity instruments is re-measured each reporting period
over the requisite service period.
Income taxes
The Company applies the elements of ASC
740–10 “
Income Taxes
” regarding accounting for uncertainty in income taxes. This clarifies the accounting
for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized
in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of March 31,
2016, no liability for unrecognized tax benefits was required to be reported. The Company does not expect that the amount of unrecognized
tax benefits will significantly increase or decrease within the next twelve months. The Company’s policy is to recognize
interest and penalties related to tax matters in the income tax provision on the Statement of Operations. There was no interest
and penalties for the periods ended March 31, 2016 and 2015.
Deferred taxes are computed based on the
tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of
expenses between financial and tax reporting purposes. The net difference, if any, between the provision for taxes and taxes currently
payable is reflected in the balance sheet as deferred taxes. Deferred tax assets and/or liabilities, if any, are classified as
current and non–current based on the classification of the related asset or liability for financial reporting purposes,
or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Valuation allowances
are recorded to reduce deferred tax assets to that amount which is more likely than not to be realized.
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 year ended March 31, 2016 and the period May 12, 2014 (Inception) through March 31, 2015 presented in these 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 March 31, 2016 and 2015:
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March 31,
2016
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March 31,
2015
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Options
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160,000
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—
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Warrants
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324,650
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|
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—
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Totals
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484,650
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—
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Shares outstanding
Shares outstanding include shares of restricted
stock with respect to which restrictions have not lapsed. Restricted stock included in reportable shares outstanding was 1,353,055
shares and 623,855 shares as of March 31, 2016 and 2015, respectively. Shares of restricted stock are included in the calculation
of weighted average shares outstanding.
Reclassification
Certain prior period amounts have been
reclassified to conform to current period presentation. The reclassifications did not have an impact on net loss as previously
reported
.
Recent Accounting Pronouncements
In August 2014,
the Financial Accounting Standards Board issued Accounting Standards Update 2014-15, “
Presentation of Financial
Statements-Going Concern”.
The Update provides U.S. GAAP guidance on management’s responsibility in
evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related
footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events
that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the
financial statements are issued. This Accounting Standards Update is the final version of Proposed Accounting Standards
Update 2013-300—Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going
Concern Presumption, which has been deleted. The amendments in this Update are effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. The Company is currently evaluating the effects of ASU 2014-15
on the consolidated financial statements.
In July 2015,
the FASB issued the FASB Accounting Standards Update No. 2015-11 “
Inventory (Topic 330)
:
Simplifying the
Measurement of Inventory” (“ASU 2015-11”).
The amendments in this Update do not apply to inventory
that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory,
which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory
within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent
measurement is unchanged for inventory measured using LIFO or the retail inventory method.
For public business entities,
the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. The Company is currently evaluating the effects of ASU 2015-11 on the consolidated financial statements.
In November 2015,
the FASB issued Accounting Standards Update ASU No. 2015-17, “
Balance Sheet Classification of Deferred Taxes”,
which
will require entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU simplifies the current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities
as current and noncurrent in a classified balance sheet. The ASU may be applied either prospectively or retrospectively. The amendments
in this ASU are effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual
periods. Earlier application is permitted as of the beginning of an interim or annual period. The Company is currently evaluating
the effects of ASU 2015-17 on the consolidated financial statements.
In January 2016, the FASB issued ASU No.
2016-01, “
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities”
. The update addresses certain aspects of recognition, measurement, presentation and disclosure
of financial instruments. For public business entities, the amendments in this Update are effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted only for certain portions
of the ASU related to financial liabilities. The Company is currently evaluating the impact of the provisions of this new standard
on our consolidated financial statements.
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company is currently evaluating the impact of the new standard.
In April 2016, the FASB issued ASU No.
2016-09, “
Compensation – Stock Compensation”
(topic 718). The FASB issued this update to improve
the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.
Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences;
(b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated
guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years.
Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.
Subsequent events
The Company has
evaluated events that occurred subsequent to March 31, 2016 and through the date the consolidated financial statements were issued.
Note 4. Property and equipment
Property and
equipment consisted of the following:
|
|
Estimated Useful Life
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Research and development equipment
|
|
3 – 10 years
|
|
$
|
192,672
|
|
|
$
|
66,095
|
|
Computer equipment
|
|
5 years
|
|
|
14,983
|
|
|
|
4,367
|
|
Furniture and fixtures
|
|
5 – 10 years
|
|
|
3,725
|
|
|
|
725
|
|
Leasehold improvements
|
|
*
|
|
|
3,240
|
|
|
|
—
|
|
|
|
|
|
|
214,620
|
|
|
|
71,187
|
|
Less: Accumulated depreciation
|
|
|
|
|
(31,710
|
)
|
|
|
(5,675
|
)
|
Total
|
|
|
|
$
|
182,910
|
|
|
$
|
65,512
|
|
(*) Amortized on a straight-line basis over the term of the
lease or the estimated useful lives, whichever period is shorter.
The Company recorded depreciation expense
of $26,035 and $5,675 for the year ended March 31, 2016 and the period May 12, 2014 (Inception) through March 31, 2015, respectively.
Note 5. Intangible assets
The Company’s
intangibles assets consisted of the following:
|
|
Estimated useful life
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Patents
|
|
15 years
|
|
$
|
62,847
|
|
|
$
|
26,450
|
|
Less: Accumulated amortization
|
|
|
|
|
(3,758
|
)
|
|
|
(1,044
|
)
|
Subtotal
|
|
|
|
|
59,089
|
|
|
|
25,406
|
|
Trademarks
|
|
—
|
|
|
1,560
|
|
|
|
1,560
|
|
Intangible assets, net
|
|
|
|
$
|
60,649
|
|
|
$
|
26,966
|
|
The Company recorded
amortization expense of $2,714 and $1,044 for the year ended March 31, 2016 and the period May 12, 2014 (Inception) through March
31, 2015, respectively.
The following table outlines estimated
future annual amortization expense for the next five years and thereafter:
March 31,
|
|
|
|
|
2017
|
|
$
|
4,140
|
|
2018
|
|
|
4,140
|
|
2019
|
|
|
4,140
|
|
2020
|
|
|
4,140
|
|
2021
|
|
|
4,140
|
|
Thereafter
|
|
|
38,389
|
|
|
|
$
|
59,089
|
|
Note 6. Accounts payable and accrued expenses
Accounts payable and accrued expenses
consisted of the following at March 31, 2016 and 2015:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
49,011
|
|
|
$
|
157
|
|
Accrued salaries and benefits
|
|
|
43,323
|
|
|
|
-
|
|
Accrued bonuses
|
|
|
93,141
|
|
|
|
-
|
|
Accrued stock-based compensation
|
|
|
106,902
|
|
|
|
5,857
|
|
Other accrued expenses
|
|
|
74,913
|
|
|
|
52,425
|
|
|
|
$
|
367,290
|
|
|
$
|
58,439
|
|
Note 7. Convertible notes payable
During March 2015, Akoustis, Inc. received
$655,000 in proceeds from six investors upon execution of convertible notes. On April 9, 2015, one note holder converted $10,000
of his outstanding convertible note to 6,806 shares of Common Stock of the Company. On May 22, 2015, the remaining $645,000 of
the notes was converted to 430,000 shares of Common Stock of the Company.
Note 8. Derivative Liabilities
Upon closing of the private placement
transactions on May 22, 2015 and June 9, 2015, the Company issued 298,551 and 26,099 warrants, respectively, to purchase Common
Stock with an exercise price of $1.50 and a five-year term to the placement agent. The Company identified certain put features
embedded in the warrants that potentially could result in a net cash settlement, requiring the Company to classify the warrants
as a derivative liability.
Level 3 Financial Liabilities – Derivative warrant
liabilities
Financial assets and liabilities measured
at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of March 31, 2016:
|
|
Carrying
|
|
|
Fair Value Measurement
Using
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrant liabilities
|
|
$
|
313,709
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
313,709
|
|
|
$
|
313,709
|
|
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 year ended March 31, 2016:
|
|
Fair Value
Measurement
Using Level 3
Inputs
|
|
|
|
Total
|
|
Balance, April 1, 2015
|
|
$
|
—
|
|
Issuance of derivative warrant liabilities
|
|
|
206,715
|
|
Change in fair value of derivative warrant liabilities
|
|
|
106,994
|
|
Balance, March 31, 2016
|
|
$
|
313,709
|
|
The fair value of the derivative feature
of the warrants on the issuance dates and at the balance sheet date were calculated using a binomial option model valued with
the following weighted average assumptions:
|
|
May 22, 2015
|
|
|
June 9, 2015
|
|
|
March 31, 2016
|
|
Risk free interest rate
|
|
|
1.57
|
%
|
|
|
1.74
|
%
|
|
|
1.04
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
47
|
%
|
|
|
47
|
%
|
|
|
41
|
%
|
Remaining term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
4.15 – 4.19
|
|
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.
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 calculates 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 warrants’ expected term.
Remaining term: The Company’s remaining term is based
on the remaining contractual maturity of the warrants.
During the year ended March 31, 2016,
the Company marked the derivative feature of the warrants to fair value and recorded a loss of $106,994 relating to the change
in fair value.
Note 9. Concentrations
For the year ended March 31, 2016, one
vendor represented 10% of the Company’s purchases. For the period ended March 31, 2015, three vendors represented 46%, 17%
and 10% of the Company’s purchases.
Note 10. Stockholders’ Equity
On April 15, 2015, the Company authorized
the execution and filing of Amended and Restated Articles of Incorporation with the Nevada Secretary of State, which among other
things, authorized the increase number of authorized shares of capital stock from 75,000,000 shares of Common Stock to 310,000,000
total shares consisting of (a) 300,000,000 shares of par value $0.001 Common Stock and (b) 10,000,000 of $0.001 par value "blank
check" preferred stock. As of March 31, 2016 and 2015, there were no shares of preferred stock issued and outstanding.
As a result of the Merger, an aggregate
of 5,500,006 shares of the Company’s Common Stock were issued to the holders of Akoustis Inc. stock.
In connection with the a Split-Off Agreement,
the Company transferred all pre-Merger assets and liabilities to the Company’s pre-Merger majority stockholder, in exchange
for the surrender by him and cancellation of 9,854,019 shares of the Company’s Common Stock. These cancelled shares resumed
the status of authorized but unissued shares of the Company’s Common Stock. The remaining shareholders of the Company owned
3,000,005 shares of Common Stock shown as a recapitalization on the Consolidated Statement of Stockholders’ Equity.
On May 22, 2015, the Company issued 100,000
shares of Common Stock for professional services provided. These shares were expensed in the Consolidated Statement of Operations
for the grant date fair value of $150,000.
During December 2015, 230,000 restricted
shares were granted to two consultants pursuant to a one-year investor relations agreement with a fair value of $485,300 at March
31, 2016. The restricted shares will vest over the life of the consulting agreement. The Company has recorded $136,603 and $0
in stock–based compensation expense for the year ended March 31, 2016 and the period from May 12, 2014 (inception) through
March 31, 2015, respectively, for the shares that have vested, which is a component of general and administrative expenses in
the Consolidated Statement of Operations. As of March 31, 2016 and 2015, the Company had $348,697 and $0, respectively, in unrecognized
stock based compensation expense related to the unvested shares.
In March 2016, the above consulting agreements
originally executed in December 2015 were amended so that the consultants would receive shares of Common Stock over the remaining
term of the agreement in lieu of the monthly cash retainer. Pursuant to the amended agreement, the Company granted 60,000
restricted shares to the two consultants with a fair value of $126,600 at March 31, 2016. The restricted shares will vest over
the remaining life of the consulting agreement. The Company has recorded $12,133 and $0 in stock–based compensation expense
for the year ended March 31, 2016 and the period from May 12, 2014 (inception) through March 31, 2015, respectively, for the shares
that have vested, which is a component of general and administrative expenses in the Consolidated Statement of Operations. As
of March 31, 2016 and 2015, the Company had $114,467 and $0, respectively, in unrecognized stock based compensation expense related
to the unvested shares.
As further discussed in Note 1, the Company
issued 3,362,104 shares of Common Stock in connection with the private placement in May and June 2015.
Also as further discussed in Note 1, the
Company held a preliminary closing of the 2016 Offer in which we sold 494,125 shares of our Common Stock at a fixed purchase price
of $1.60 per share (the “2016 Offering Price”), for aggregate gross proceeds of $790,600 before deducting expenses
of $20,913.
As of March 31, 2016 and 2015, the Company
had 13,615,440 and 5,493,200 common shares issued and outstanding, respectively.
Stock incentive plan
On May 22, 2015, the Board of Directors
adopted, and on the same date the stockholders approved, the 2015 Plan, which reserves a total of 1,200,000 shares of Common Stock
for issuance under the 2015 Plan. The 2015 Plan authorizes the grant to participants of nonqualified stock options, incentive
stock options, restricted stock awards, restricted stock units, performance grants. The Company agreed not to grant awards under
the 2015 Plan for more than 600,000 shares of Common Stock during the first year following the closing of the Merger. If an incentive
award granted under the 2015 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to the
Company in connection with an incentive award, the shares subject to such award and the surrendered shares will become available
for further awards under the 2015 Plan.
In addition, the number of shares of our
Common Stock subject to the 2015 Plan, any number of shares subject to any numerical limit in the 2015 Plan, and the number of
shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding Common Stock
by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger,
consolidation, liquidation, business combination or exchange of shares or similar transaction.
Options granted under the Plan vest as
determined by the Company’s board of directors and expire over varying terms, but not more than seven years from date of
grant. In the case of an Incentive Stock Option that is granted to a 10% shareholder on the date of grant, such Option shall not
be exercisable after the expiration of five years from the date of grant. During the year ended March 31, 2016, 160,000 options
were issued to four non-employee directors.
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:
|
|
For the Year Ended
|
|
|
|
March 31, 2016
|
|
Expected term (years)
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
1.29
|
%
|
Volatility
|
|
|
47
|
%
|
Dividend yield
|
|
|
0
|
%
|
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 based on the corresponding volatility of the Company’s peer group stock price
for a period consistent with the options’ expected term.
Dividend yield: The Company uses a
0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near
future.
The following is a summary of the option
activity:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding – April 1, 2015
|
|
|
—
|
|
|
$
|
—
|
|
Exercisable –April 1, 2015
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
160,000
|
|
|
|
1.50
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
Outstanding – March 31, 2016
|
|
|
160,000
|
|
|
$
|
1.50
|
|
Exercisable – March 31, 2016
|
|
|
—
|
|
|
$
|
—
|
|
As of March 31, 2016, the total intrinsic
value of options outstanding and exercisable was $97,600 and $0, respectively. As of March 31, 2016, the Company has $87,696 in unrecognized
stock based compensation expense attributable to the outstanding options which will be amortized over a period of 3.14 years.
For the year ended March 31, 2016 and
the period May 12, 2014 (Inception) through March 31, 2015, the Company recorded $24,028 and $0, respectively, in stock-based
compensation related to stock options which is reflected in the consolidated statements of operations.
Issuance of restricted shares –
employees and consultants
Restricted stock awards are considered
outstanding at the time of execution by the Company and the recipient of a restricted stock agreement, as the stock award holders
are entitled to dividend and voting rights. At the end of fiscal 2016, the number of shares granted for which the restrictions
have not lapsed was 463,841 shares.
Restricted shares are valued using the
share price on the date of most recent equity raise or the value of the services performed, whichever is more readily determinable.
The grant date fair value of the award is recorded as share–based compensation expense over the respective restriction period.
Any portion of the grant awarded to consultants as to which the repurchase option has not lapsed is accrued on the Balance Sheet
as a component of accounts payable and accrued expenses. As of March 31, 2016 and 2015, the accrued stock-based compensation was
$106,902 and $5,857, respectively. The Company has the right to repurchase some or all of such shares upon termination of the
individual’s service with the Company, whether voluntary or involuntary, for 60 months from the date of termination (“repurchase
option”). The shares as to which the repurchase option has not lapsed are subject to forfeiture upon termination of consulting
and employment agreements.
During the year ended March 31, 2016,
the Company amended the original restricted stock agreement for certain award recipients. According to the amendment, 75% of the
shares as to which the repurchase option had not lapsed as of September 30, 2015, shall be released from the repurchase option
on the third anniversary of the original effective date of the agreement. The remaining 25% of the shares shall be released from
the repurchase option on the fourth anniversary of the original effective date.
The following is a summary of restricted shares:
|
|
|
|
|
|
|
|
|
|
|
Stock-based Compensation
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Year
Ended
|
|
|
May 12,
2014
(Inception)
through
|
|
|
Unrecognized
Compensation
|
|
Grant Date
|
|
Shares
Issued
|
|
|
Fair
Value
|
|
|
Shares
Vested
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
June 2014
|
|
|
307,876
|
|
|
$
|
381,779
|
|
|
|
96,211
|
|
|
$
|
115,045
|
|
|
$
|
3,916
|
|
|
$
|
262,818
|
|
|
$
|
269,134
|
|
July 2014
|
|
|
32,408
|
|
|
|
2,090
|
|
|
|
9,452
|
|
|
|
486
|
|
|
|
363
|
|
|
|
1,241
|
|
|
|
1,727
|
|
August 2014
|
|
|
81,020
|
|
|
|
169,986
|
|
|
|
21,943
|
|
|
|
41,687
|
|
|
|
807
|
|
|
|
127,492
|
|
|
|
119,756
|
|
September 2014
|
|
|
129,633
|
|
|
|
74,339
|
|
|
|
32,408
|
|
|
|
19,981
|
|
|
|
1,133
|
|
|
|
53,225
|
|
|
|
53,437
|
|
March 2015
|
|
|
72,918
|
|
|
|
153,663
|
|
|
|
-
|
|
|
|
24,444
|
|
|
|
-
|
|
|
|
129,219
|
|
|
|
109,184
|
|
June 2015
|
|
|
293,000
|
|
|
|
439,500
|
|
|
|
-
|
|
|
|
84,839
|
|
|
|
-
|
|
|
|
354,661
|
|
|
|
-
|
|
November 2015
|
|
|
36,200
|
|
|
|
54,300
|
|
|
|
-
|
|
|
|
7,993
|
|
|
|
-
|
|
|
|
46,307
|
|
|
|
-
|
|
December 2015
|
|
|
300,000
|
|
|
|
590,300
|
|
|
|
-
|
|
|
|
151,179
|
|
|
|
-
|
|
|
|
439,121
|
|
|
|
-
|
|
January 2016
|
|
|
40,000
|
|
|
|
68,000
|
|
|
|
-
|
|
|
|
7,829
|
|
|
|
-
|
|
|
|
60,171
|
|
|
|
-
|
|
March 2016
|
|
|
60,000
|
|
|
|
126,600
|
|
|
|
-
|
|
|
|
12,133
|
|
|
|
-
|
|
|
|
114,467
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,353,055
|
|
|
$
|
2,060,557
|
|
|
|
160,014
|
|
|
$
|
465,616
|
|
|
$
|
6,219
|
|
|
$
|
1,588,722
|
|
|
$
|
553,238
|
|
Note 11. Commitments
Employment agreements
On June 15, 2015, the Company entered
into a three-year employment agreement with the Chief Executive Officer (“CEO”). After the initial three-year term,
the agreement will be automatically renewed for successive one-year periods unless terminated by either party on at least 30 days’
written notice prior to the end of the then-current term. The CEO’s annual base salary is $150,000 and is subject to increase
or decrease on each anniversary as determined by the Board of Directors. The CEO is eligible, at the discretion of our Board of
Directors, to receive an annual cash bonus of up to 100% of the annual base salary, which may be based on the Company achieving
certain operational, financial or other milestones (the “Milestones”) that may be established by the Board of Directors.
The CEO is entitled to receive stock options or other equity incentive awards under the 2015 Plan as and when determined by the
Board, and is entitled to receive perquisites and other fringe benefits that may be provided to, and is eligible to participate
in any other bonus or incentive program established by the Company, for the executives. The CEO and his dependents are also entitled
to participate in any of the employee benefit plans subject to the same terms and conditions applicable to other employees. The
CEO will be entitled to be reimbursed for all reasonable travel, entertainment and other expenses incurred or paid by him in connection
with, or related to, the performance of his duties, responsibilities or services under his employment agreement, in accordance
with policies and procedures, and subject to limitations, adopted by us from time to time. In the event that the CEO is terminated
by the Company without Cause (as defined in his employment agreement) or he resigns for Good Reason (as defined in his employment
agreement) during the term of his employment, the CEO would be entitled to (x) an amount equal to his annual base salary then
in effect (payable in accordance with the Company’s normal payroll practices) for a period of 24 months commencing on the
effective date of his termination (the “Severance Period”) (in the case of termination by the executive for Good Reason,
reduced by any cash remuneration paid to him because of any other employment or self-employment during the Severance Period),
and (y) if and to the extent the Milestones are achieved for the annual bonus for the year in which the Severance Period commences
(or, in the absence of Milestones, the Board of Directors has, in its sole discretion, otherwise determined an amount of the CEO’s
annual bonus for such year), an amount equal to such annual bonus pro-rated for the portion of the performance year completed
before the CEO employment terminated, (z) any unvested stock options, restricted stock or similar incentive equity instruments
will vest immediately. For the duration of the Severance Period, the CEO will also be eligible to participate in our benefit plans
or programs, provided the CEO was participating in such plan or program immediately prior to the date of employment termination,
to the extent permitted under the terms of such plan or program (collectively, the “Termination Benefits”). If the
CEO’s employment is terminated during the term by the Company for Cause, by the CEO for any reason other than Good Reason
or due to his death, then he will not be entitled to receive the Termination Benefits, and shall only be entitled to the compensation
and benefits which shall have accrued as of the date of such termination (other than with respect to certain benefits that may
be available to the CEO as a result of a Permanent Disability (as defined in his employment agreement).
On June 15, 2015, the Company also entered
into employment agreements with each of the Vice President of Business Development, the Vice President of Operations, and the
Chief Financial Officer. Each of these employment agreements has substantially the same terms as that of the CEO described above,
except as follows:
|
|
Term
|
|
Base Salary
|
|
|
Eligible Bonus
% of
Base Salary
|
|
|
Severance
Period
|
Vice President of Business Development
|
|
2 years
|
|
$
|
136,000
|
|
|
|
50
|
%
|
|
6 months
|
Vice President of Operations
|
|
2 years
|
|
$
|
136,000
|
|
|
|
50
|
%
|
|
6 months
|
Chief Financial Officer
|
|
2 years
|
|
$
|
145,000
|
|
|
|
50
|
%
|
|
6 months
|
In addition, in accordance with each such
employment agreement, each of these executives received a restricted stock award under the 2015 Plan for the number of shares
of the Company’s common stock shown below. These restricted stock awards are subject to a repurchase option in favor of
the Company that lapses over a four-year period, as follows: the repurchase option on 50% of the shares will lapse at the end
of two years from date of issuance, and the repurchase option on 25% of the shares will lapse at the end of each of the third
and fourth years from date of issuance.
|
|
Number of Shares
of
Restricted Stock
|
|
|
Grant Date Fair
Value
|
|
Vice President of Business Development
|
|
|
110,000
|
|
|
$
|
165,000
|
|
Vice President of Operations
|
|
|
38,000
|
|
|
$
|
57,000
|
|
Chief Financial Officer
|
|
|
145,000
|
|
|
$
|
217,500
|
|
Operating leases
In July 2014, Akoustis, Inc. entered into
a 24–month lease agreement for office space located in Cornelius, North Carolina, terminating on June 30, 2016. Under the
agreement, total annual rent is $24,000 with the option to renew the lease for two additional one year terms.
In April 2015, Akoustis, Inc. entered
into a new lease agreement for office space in Huntersville, NC. The lease is for a three-year term with monthly base rent
payments of approx. $3,800 and requires a deposit of $10,000. At the time of the execution of the new lease, the original lease
for the existing office space had 14 months remaining on the existing two-year agreement. Akoustis, Inc. negotiated with the landlord
to pay $16,000 for an eight-month termination fee, which includes rent through May 15, 2015.
The operating leases provide for annual
real estate tax and cost of living increases and contain predetermined increases in the rentals payable during the term of the
lease. The aggregate rent expense is recognized on a straight-line basis over the lease term. The total lease rental expense was
$66,556 and $19,613 for the year ended March 31, 2016 and the period May 12, 2014 (Inception) through March 31, 2015, respectively.
Total future minimum payments required
under the new operating lease are as follows.
Year Ending March 31,
|
|
|
|
2017
|
|
$
|
46,854
|
|
2018
|
|
|
48,260
|
|
2019
|
|
|
4,031
|
|
|
|
$
|
99,145
|
|
Note 12. Related Party Transactions
Offering and convertible notes
Akoustis, Inc. was founded on May 12,
2014. In June 2014, the founders and angel investors contributed $530,000 in a series-seed equity financing.
In March 2015 the Company executed a stock
purchase agreement for $35,000 with an investor to offset legal and audit expenses related to the Merger and private placement
offering. In April 2015, one of the convertible noteholders converted $10,000 of his convertible note into shares of Akoustis,
Inc. Common Stock in order to enable the Company to qualify for additional matching funds from NSF. As a result, the net note
investment remaining was $645,000, which, in accordance with the terms of the convertible notes, converted into Common Stock of
the Company on the same terms as the other investors in the Company’s private placement offering referred to below, at a
conversion price of $1.50 per share.
Of the $530,000 raised by Akoustis, Inc.,
in June 2014, the CEO was the largest investor at $175,000. The CEO also purchased $200,000 principal amount of Akoustis, Inc.,
convertible notes in March 2015 and in addition, he participated in the 2015 Offering, purchasing 134,000 shares of Common Stock
for an aggregate purchase price of $201,000 (of which $200,000 was paid by conversion of the convertible note). He also participated
in the 2016 Offering, purchasing 93,750 shares of Common Stock for an aggregate purchase price of $150,000.
Furthermore, a firm owned by the CEO (Raytech,
LLC) loaned Akoustis, Inc., $30,000 to assist in purchase of test and measurement equipment required to evaluate the performance
of the technology demonstrators. The loan was a 12-month simple interest note and was repaid in full in March 2015.
A Director since May 22, 2015 participated
in the $530,000 equity financing of Akoustis, Inc., in June 2014 by investing $50,000 and participated in the 2015 Offering, purchasing
17,000 shares of Common Stock for an aggregate purchase price of $25,500.
The Vice President of Operations since
May 18, 2015, received payments for consulting services of $27,426 for Akoustis, Inc. under an independent contractor agreement
from May 14, 2014 to May 18, 2015 when he became an employee of the Company. In addition, the Vice President of Operations since
May 18, 2015, participated in the 2015 Offering, purchasing 17,000 shares of Common Stock for an aggregate purchase price of $25,500
and participated in the 2016 Offering, purchasing 6,250 shares of Common Stock for an aggregate purchase price of $10,000.
A Director since May 22, 2015, participated
in the $530,000 financing of Akoustis, Inc., in June 2014 by investing $100,000. He also purchased $225,000 principal amount of
Akoustis, Inc., convertible notes in March 2015. and at Akoustis, Inc.’s request and to qualify Akoustis, Inc. for an NSF
matching award in April 2015, he also purchased 21 shares of Akoustis, Inc.’s Common Stock pre-Merger (6,806 shares of our
Common Stock post-Merger) for an aggregate purchase price of $10,000 paid by partial conversion of the convertible note. In addition,
the Director participated in the 2015 Offering, purchasing 144,000 shares of Common Stock for an aggregate purchase price of $216,000
(of which $215,000 was paid by conversion of the convertible note) ad he also participated in the 2016 Offering, purchasing 35,000
shares of Common Stock for $56,000.
The brother of the CEO participated in
the $530,000 equity financing of Akoustis, Inc., in June 2014 by investing $80,000. The CEO’s brother also purchased $130,000
principal amount of Akoustis, Inc., convertible notes in March 2015 and participated in the 2015 Offering, purchasing 90,000 shares
of Common Stock for an aggregate purchase price of $135,000 (of which $130,000 was paid by conversion of the convertible note).
He also participated in the 2015 Offering, purchasing 100,000 shares of Common Stock for an aggregate purchase price of $150,000.
A stockholder, who beneficially owns approximately
15.4% of the Common Stock as of June 27, 2016, participated in the 2015 Offering, purchasing 135,000 shares of Common Stock for
an aggregate purchase price of $202,500 and participated in the 2016 Offering purchasing 250,000 shares of Common Stock for $400,000.
The stockholder is also a party to the Registration Rights Agreement with respect to all of his shares.
A Director since May 22, 2015 and Co-Chairman
since May 11, 2016 participated in the 2016 Offering, purchasing 125,000 shares of Common Stock for an aggregate purchase price
of $200,000.
A Director since May 22, 2015 and Co-Chairman
since May 11, 2016 participated in the 2016 Offering, purchasing 10,000 shares of Common Stock for an aggregate purchase price
of $16,000.
Furthermore, AEG consulting, a firm owned
by a Co-Chairman received $9,463 and $3,462 for consulting fees for fiscal years ended March 31, 2016 and March 31, 2015, respectively.
The Chief Financial Officer since June
15, 2015, and VP of Business Development since May 6, 2015 participated in the 2016 Offering. The CFO purchased 9,375 of Common
Stock for an aggregate purchase price of $15,000 while the VP of Business Development purchased 6,250 shares of Common Stock for
an aggregate purchase price of $10,000.
Inventory Purchase
In March 2016, the Company purchased inventory
from Big Red LLC (“Big Red”), a company formed by the CEO, the brother of the Company’s CEO, the VP of Operations
and one additional party. The transaction for $43,544 was executed so that the Company could pursue commercialization of the amplifier
inventory purchased. The Company will utilize this inventory and related technology to process and sell the amplifiers. The CEO
and VP of Operations assigned their interests in Big Red to other parties in March of 2016.
Note 13. Income Taxes
The Company had no income tax expense
due to operating losses incurred for the years ended March 31, 2016 and 2015.
The provision for/(benefit from) income
tax differs from the amount computed by applying the statutory federal income tax rate to income before the provision for/(benefit
from) income taxes. The sources and tax effects of the differences are as follows for the period ended March 31, 2016 and 2015:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Income taxes at Federal statutory rate
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
State income taxes, net of Federal income tax benefit
|
|
|
(2.54
|
)%
|
|
|
(3.96
|
)%
|
Permanent differences
|
|
|
1.07
|
%
|
|
|
0.00
|
%
|
Change in Valuation Allowance
|
|
|
35.32
|
%
|
|
|
37.96
|
%
|
State tax rate change
|
|
|
0.16
|
%
|
|
|
0.00
|
%
|
Income Tax Provision
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The tax effects of temporary differences
that give rise to the Company’s deferred tax assets and liabilities are as follows:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Net Operating Loss Carryforwards
|
|
$
|
1,264,686
|
|
|
$
|
159,721
|
|
Share-based compensation
|
|
|
236,645
|
|
|
|
–
|
|
Other
|
|
|
(21,324
|
)
|
|
|
9,713
|
|
|
|
|
1,480,007
|
|
|
|
169,434
|
|
Valuation Allowance
|
|
|
(1,480,007
|
)
|
|
|
(169,434
|
)
|
Net Deferred Tax Assets
|
|
$
|
–
|
|
|
$
|
–
|
|
At March 31, 2016, the Company had approximately
$3,452,000 of federal and state net operating loss carryovers that may be available to offset future taxable income.
The Company will not be able to utilize
these carryovers until the related tax returns are filed. The net operating loss carry overs, if not utilized, will expire in
stages beginning 2035. As it is not more likely than not that the resulting deferred tax benefits will be realized, a full valuation
allowance has been recognized for such deferred tax assets. The net change in the valuation allowance during the year ended March
31, 2016 was an increase of approximately $1,311,000.
Due to the merger on May 22, 2015, Akoustis
Technologies Inc.'s previous net operating losses may be significantly limited. The Company has not performed a detailed analysis
to determine whether an ownership change under IRC Section 382 or similar rules has occurred. The effect of an ownership change
would be the imposition of annual limitation on the use of NOL carryforwards attributable to periods before the change. Any limitation
may result in expiration of a portion of the NOL before utilization. The Company recognizes interest and penalties related to
uncertain tax positions in selling, general and administrative expenses. The Company has not identified any uncertain tax positions
requiring a reserve as of March 31, 2016 and 2015.
Note 14. Subsequent Events
The April 2016 Offering
As discussed in Note 1, on April 14, 2016,
the Company held closings of a private placement offering (the “April 2016 Offering”) in which the Company sold 1,741,185
shares of Common Stock at a fixed purchase price of $1.60 per share (the “2016 Offering Price”), for aggregate gross
proceeds of $2,785,896 (before deducting expenses for legal services and agent commissions of the April 2016 Offering).
License Agreement
In April 2016, the Company entered into
a license agreement with Big Red LLC (“Big Red”), a company formed in 2008 to commercialize technology developed by
the brother of the Company’s CEO. The license agreement was executed so that the Company could pursue commercialization
of amplifier inventory purchased from Big Red in March 2016. The Company will utilize this inventory and related technology to
process and sell the amplifiers. Future revenue from sales utilizing the amplifier technology will result in a license fee paid
to Big Red according to the following schedule:
Net Sales
|
|
Royalty Percentage
|
|
$0 - $500,000
|
|
|
5.00
|
%
|
$500,000 - $1,000,000
|
|
|
4.00
|
%
|
$1,000,000 - $2,000,000
|
|
|
3.50
|
%
|
$2,000,000 – $5,000,000
|
|
|
3.00
|
%
|
$5,000,001 and over
|
|
|
2.00
|
%
|
Issuance of Restricted Stock
On May 22, 2016, The Board of Directors
by written consent approved the issuance of following Restricted Stock Awards for a total of 146,000 shares to four employees
and one contractor effective March 23, 2016 under the Company’s Equity Incentive Plan. With the exception of one grant for
90,000 shares for a certain employee, these restricted stock awards are subject to a repurchase option in favor of the Company
that lapses over a four-year period, as follows: the repurchase option on 50% of the shares will lapse at the end of two years
from date of issuance, and the repurchase option on 25% of the shares will lapse at the end of each of the third and fourth years
from date of issuance. The Board of Director’s in its written consent approved on May 22, 2016 agreed to amending the vesting
schedule for the grant of 90,000 shares which are subject to a repurchase option in favor of the Company that lapses over a three-year
period, as follows: the repurchase option on 50% of the shares will lapse at the end of the first year from date of issuance,
and the repurchase option on 25% of the shares will lapse at the end of each of the second and third years from date of issuance.
AKOUSTIS
TECHNOLOGIES, INC.
4,024,900 Shares
of Common Stock
PROSPECTUS
July 22, 2016
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