Notes to the Condensed Consolidated
Financial Statements
(Unaudited
)
Note 1. Organization
Akoustis Technologies, Inc. (“the
Company”) was incorporated under the laws of the State of Nevada on April 10, 2013. Effective December 15, 2016, the Company
changed its state of incorporation from the State of Nevada to the State of Delaware. Through its subsidiary, Akoustis, Inc. (a
Delaware corporation), the Company, headquartered in Huntersville, North Carolina, is focused on developing, designing, and manufacturing
innovative radio frequency (“RF”) filter products for the wireless industry, including for products such as smartphones
and tablets, cellular infrastructure equipment, and WiFi Customer Premise Equipment (“CPE”), and, military and defense
communication applications. Located between the device’s antenna and its digital backend, the RF front-end (“RFFE”)
is the circuitry that performs the analog signal processing and contains components such as amplifiers, filters and switches.
To construct the resonator devices that are the building blocks for its RF filters, the Company has developed a family of novel,
high purity acoustic piezoelectric materials as well as a unique MEMS wafer process, collectively referred to as XBAW™ technology.
The Company leverages its integrated device manufacturing (IDM) business model to develop and sell high performance RF filters
using its XBAW
TM
technology. Filters are critical in selecting and rejecting signals, and their performance enables
differentiation in the modules defining the RFFE.
Note 2. Liquidity
At March 31, 2019, the Company had cash
and cash equivalents of $34.6 million and working capital of $33.0 million. The Company has historically incurred recurring operating
losses, and has experienced net cash used in operating activities of $13.4 million for the nine months ended March 31, 2019, which
raises substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date.
However, as of May 6, 2019, the Company had
$32.8 million of cash and cash equivalents, which funds are expected to be sufficient to fund our operations beyond the next twelve
months from the date of filing of this Form 10-Q. These funds will be used to fund the Company’s operations, including capital
expenditures, R&D, commercialization of our technology, development of our patent strategy and expansion of our patent portfolio,
as well as to provide working capital and funds for other general corporate purposes. However, the Company has no commitments
to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the
Company is unable to obtain additional financing in a timely fashion and on acceptable terms, its financial condition and results
of operations may be materially adversely affected and it may not be able to continue operations or execute its stated commercialization
plan.
Note 3. Summary of Significant Accounting
Policies
Basis of Presentation
The Company’s unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”)
for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary
for a fair presentation have been included. The Company has evaluated subsequent events through the filing of this Form 10-Q.
Operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2019 or any future interim period. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in
the Company’s Form 10-K filed with the SEC on August 29, 2018 (the “2018 Annual Report”).
Principles of Consolidation
The accompanying unaudited condensed
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Akoustis, Inc. On February
22, 2018, Akoustis Manufacturing New York, Inc. was merged into Akoustis, Inc., with Akoustis, Inc. as the surviving entity. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Significant Accounting Policies and Estimates
The Company’s significant accounting policies are disclosed
in Note 3-Summary of Significant Accounting Policies in the 2018 Annual Report. Since the date of the 2018 Annual Report, other
than adopting ASC 606 “
Revenue From Contracts With Customers”
discussed in the footnote below, there have been no material changes to the Company’s significant accounting policies.
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements
and the accompanying notes thereto. The policies, estimates and assumptions include valuing equity securities and derivative financial
instruments issued in financing transactions, deferred taxes and related valuation allowances, revenue recognition, contingent
real estate liability and the fair values of long-lived assets. Actual results could differ from the estimates.
Shares Outstanding
Shares outstanding include shares of restricted
stock with respect to which restrictions have not lapsed. Restricted stock included in reportable shares outstanding was 311,328
shares and 862,821 shares as of March 31, 2019 and 2018, respectively. Shares of restricted stock are included in the calculation
of weighted average shares outstanding.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and in May 2016, the FASB
issued ASU No. 2016-12,
Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients
.
These standards and their effect on the Company’s consolidated financial statements and related disclosures are discussed
above under “Revenue Recognition.”
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “
Leases
”
(Topic 842)
and subsequently amended certain aspects during March 2019 with ASU2019-01. The
FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective
for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of
the update is permitted, and entities may also elect the optional transition method provided under ASU 2018-11,
Leases,
Topic 842: Targeted Improvement,
issued in July 2018, allowing for application of the standard at the adoption date, with
recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The
Company does not expect the new standard will have a material effect on the consolidated financial statements and related
disclosures.
In July 2018, the FASB issued ASU 2018-11,
“
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic
815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests
with a Scope Exception”
. Part I of this update addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the
difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content
in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements
about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling
interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2018. The Company elected to early adopt ASU 2018-11 in May
2018, in the recording of the $15.0 million convertible notes.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation – Stock Compensation (Topic718): Improvements to Nonemployee Share-Based Payment Accounting
. Under the
new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will
value all equity classified awards at their grant date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07
is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting
period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606,
Revenue from Contracts
with Customers
(as described above under “Revenue Recognition”). The Company does not believe the new standard
will have a significant impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”.
This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication
of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments
in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring
fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December
15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this
update on its consolidated financial statements.
Management does not believe that any other
recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying
condensed consolidated financial statements.
Note 4. Revenue Recognition from Contracts
with Customers
Effective as of July 1, 2018, the Company
adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC
606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for
those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more
judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including
identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate performance obligation.
The Company adopted this guidance and related
amendments as of the first quarter of fiscal 2019, applying the modified retrospective transition method. The Company has determined
that there was a $20,416 adjustment needed to retained earnings due to the application of the standard on contracts not completed
at the date of initial application.
To achieve this core principle, the Company
applies the following five steps:
Step l - Identify the Contract with the
Customer - A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their
respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred,
(c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance
and (e) it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange
for the goods or services that will be transferred to the customer.
Step 2 - Identify Performance Obligations
in the Contract - Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the
customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially the
same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services,
the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of
the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation. The
Company considers the performance obligation in a product sale to be title transfer of the specified product to the customer. The
transfer of title occurs according to the purchase order (contract) specification. The Company considers performance obligations
related to foundry fabrication services to be title transfer of the specified product or prototype to the customer. The transfer
of title occurs according to the purchase order (contract) specification. In the absence of title transfer language, transfer occurs
at the time of shipment.
Step 3 - Determine the Transaction Price
- The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
products or services to the customer. Generally, all contracts include fixed consideration. If a contract did include variable
consideration, the Company would determine the amount of variable consideration that should be included in the transaction price
based on the expected value method. Variable consideration would be included in the transaction price, if in the Company’s
judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.
Step 4 - Allocate the Transaction Price
- After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation
in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation.
If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on
the relative standalone selling price (SSP) at contract inception.
Step 5 - Satisfaction of the Performance
Obligations (and Recognition of Revenue) - When an asset is transferred, and the customer obtains control of the asset (or the
services are rendered), the Company recognizes revenue. At contract inception, the Company determines if each performance obligation
is satisfied at a point in time or over time. The Company will recognize sales of its product in the period that title of the product
is transferred to the customer. The Company will evaluate foundry fabrication services contracts on a case by case basis as they
vary with regards to enforceable right and alternative use. If an unrestricted, enforceable right and no alternative use exists,
the Company will recognize revenue over time utilizing the input method which the Company considers to be the best method of measuring
progress toward complete satisfaction of the performance obligation. However, if either of these does not exist, the Company will
recognize revenue at a point in time based on title transfer of the final prototype or specified product.
Disaggregation of Revenue
The Company’s primary revenue streams include foundry
fabrication services and product sales.
Foundry Fabrication Services
Foundry fabrication services revenue includes
microelectromechanical systems (“MEMS”) foundry services and Non-Recurring Engineering (“NRE”). Under
these contracts, products are delivered to the customer at the completion of the service which represents satisfaction of the
performance obligation. Depending on language with regards to enforceable right to payment for performance completed to date,
related revenue will either be recognized over time or at a point in time.
Product Sales
Product sales revenue consists of
sales of RF filters and amps which are sold with contract terms stating that title passes, and the customer takes control at
the time of shipment. Revenue is then recognized when the devices are shipped, and the performance obligation has been
satisfied. If devices are sold under contract terms that specify that the customer does not take ownership until the goods
are received, revenue is recognized when the customer receives the goods.
The following table summarizes the revenues of the Company’s
reportable segments for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Foundry
Fabrication
Services
Revenue
|
|
|
Product Sales
Revenue
|
|
|
Total Revenue
with
Customers
|
|
MEMS
|
|
|
$
|
30,490
|
|
|
|
—
|
|
|
$
|
30,490
|
|
NRE - RF Filters
|
|
|
|
128,628
|
|
|
|
—
|
|
|
|
128,628
|
|
Filters/Amps
|
|
|
|
—
|
|
|
|
78,345
|
|
|
|
78,345
|
|
Total
|
|
|
$
|
159,118
|
|
|
$
|
78,345
|
|
|
$
|
237,463
|
|
The following table summarizes the revenues of the Company’s
reportable segments for the nine months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Foundry
Fabrication
Services
Revenue
|
|
|
Product Sales
Revenue
|
|
|
Total Revenue
with
Customers
|
|
MEMS
|
|
|
$
|
174,899
|
|
|
|
—
|
|
|
$
|
174,899
|
|
NRE – RF Filters
|
|
|
|
392,071
|
|
|
|
—
|
|
|
|
392,071
|
|
Filters/Amps
|
|
|
|
—
|
|
|
|
197,318
|
|
|
|
197,318
|
|
Total
|
|
|
$
|
566,970
|
|
|
$
|
197,318
|
|
|
$
|
764,288
|
|
Performance Obligations
The
Company has determined that contracts for product sales revenue and foundry fabrication services revenue involve one performance
obligation, which is delivery of the final product.
Contract
Balances
The
Company records a receivable when the title for goods has transferred. Generally, all sales are contract sales (with either an
underlying contract or purchase order), resulting in all receivables being contract receivables. When invoicing occurs prior to
revenue recognition a contract liability is recorded (as deferred revenue on the Condensed Consolidated Balance Sheet).
The
following table summarizes the changes in revenue recognition for the nine months ended March 31, 2019:
|
|
Deferred
Revenue
|
|
Balance, June 30, 2018
|
|
$
|
52,938
|
|
Revenue recognized from prior year
|
|
|
(52,938
|
)
|
Year to date invoicing
in excess of revenue recognition
|
|
|
3,920
|
|
Balance, March
31, 2019
|
|
$
|
3,920
|
|
Additionally,
when revenue recognition occurs prior to invoicing, a contract asset is recognized.
The following table summarizes the changes in contract assets, included in Other current assets on the
Condensed Consolidated Balance Sheet, for the nine months ended March 31, 2019:
|
|
Contract
assets
|
|
Balance, June 30, 2018
|
|
$
|
6,612
|
|
YTD revenue recognition
in excess of billings
|
|
|
57,459
|
|
Balance, March
31, 2019
|
|
$
|
64,071
|
|
Backlog
of Remaining Customer Performance Obligations
Revenue
expected to be recognized and recorded as sales during this fiscal year from the backlog of performance obligations that are unsatisfied
(or partially unsatisfied) was $0.2 million at March 31, 2019.
Grant
Revenue
From
time to time the Company applies for grants from various government bodies (state & federal), such as the National
Science Foundation (“NSF”), to support research and development. In addition, the Company is eligible for
“matching awards” from state boards to provide additional funds to the Company to supplement the funds awarded
under the federal grant program. The Company records grant revenue as a part of revenue from operations due to the fact that
grant revenue is viewed as an ongoing function of its intended operations. The revenue from grants is not viewed as
“incidental” or “peripheral” which would result in the presentation of grant revenue as “Other
income”. The Company recognizes nonrefundable grant revenue when the performance obligations have been met, application
has been submitted and approval is reasonably assured.
Note
5.
Common Stock Equivalents
The
Company had the following common stock equivalents at March 31, 2019 and 2018. These are excluded from the loss per share calculation as they are considered anti-dilutive.
|
|
March
31,
2019
|
|
|
March
31,
2018
|
|
Convertible Notes
|
|
|
4,960,800
|
|
|
|
—
|
|
Options
|
|
|
2,177,314
|
|
|
|
1,263,859
|
|
Warrants
|
|
|
708,651
|
|
|
|
754,809
|
|
Total
|
|
|
7,846,765
|
|
|
|
2,018,668
|
|
Note 6. Property and Equipment, net
Property
and equipment, net consisted of the following as of March 31, 2019 and June 30, 2018:
|
|
Estimated
Useful
Life
|
|
March
31,
2019
|
|
|
June
30,
2018
|
|
Land
|
|
n/a
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Building
|
|
11 years
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Equipment
|
|
2-10 years
|
|
|
13,360,745
|
|
|
|
9,126,755
|
|
Other
|
|
*
|
|
|
1,260,349
|
|
|
|
1,057,854
|
|
|
|
|
|
|
18,621,094
|
|
|
|
14,184,609
|
|
Less: Accumulated
depreciation
|
|
|
|
|
(3,136,224
|
)
|
|
|
(1,364,440
|
)
|
Total
|
|
|
|
$
|
15,484,870
|
|
|
$
|
12,820,169
|
|
(*)
Useful lives vary from 3-10 years, as well as leasehold improvements which are amortized on a straight-line basis over the term
of the lease or the estimated useful lives, whichever is shorter.
The
Company recorded depreciation expense of $623,281 and $313,438 for the three months ended March 31, 2019 and 2018, respectively.
The
Company recorded depreciation expense of $1,810,142 and $783,857 for the nine months ended March 31, 2019 and 2018, respectively.
Note
7. Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following at March 31, 2019 and June 30, 2018:
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
Accounts
payable
|
|
$
|
315,015
|
|
|
$
|
139,152
|
|
Accrued salaries
and benefits
|
|
|
545,921
|
|
|
|
505,463
|
|
Accrued bonuses
|
|
|
1,133,799
|
|
|
|
750,442
|
|
Accrued stock-based
compensation
|
|
|
192,158
|
|
|
|
395,539
|
|
Accrued professional
fees
|
|
|
203,302
|
|
|
|
293,024
|
|
Accrued utilities
|
|
|
105,293
|
|
|
|
103,277
|
|
Accrued interest
|
|
|
135,417
|
|
|
|
127,292
|
|
Accrued goods received
not invoiced
|
|
|
95,423
|
|
|
|
160,199
|
|
Other
accrued expenses
|
|
|
73,993
|
|
|
|
119,044
|
|
Totals
|
|
$
|
2,800,321
|
|
|
$
|
2,593,432
|
|
Note
8. Derivative Liabilities
The Company’s 6.5% Convertible Senior
Secured Notes due 2023 issued in May 2018 contain certain derivative features, as described in Note 9 - Convertible Notes. The
table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months
ended March 31, 2019:
|
|
Fair
Value
Measurement
Using Level 3
Inputs
Total
|
|
Balance, July 1, 2018
|
|
$
|
1,104,701
|
|
Change in fair value
of derivative liabilities
|
|
|
1,371,700
|
|
Balance, March
31, 2019
|
|
$
|
2,476,401
|
|
The
fair value of the derivative features of the convertible note at the balance sheet dates were calculated using the with-and-without
method, a form of the income approach, valued with the following weighted average assumptions:
|
|
March
31, 2019
|
|
|
June
30,
2018
|
|
Risk
free interest rate
|
|
|
2.22
|
%
|
|
|
2.73
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
48.0
|
%
|
|
|
42.0
|
%
|
Remaining term (years)
|
|
|
4.17
|
|
|
|
4.92
|
|
Risk-free
interest rate:
The Company uses the risk-free interest rate of a U.S. Treasury Bill with a similar term on the date of the
issuance.
Dividend
yield:
The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate
declaring dividends in the near future.
Volatility:
The Company estimated the expected volatility of the stock price based on the corresponding volatility of the Company’s
peer group stock price for a period consistent with the convertible notes’ expected term.
Remaining
term:
The Company’s remaining term is based on the remaining contractual term of the convertible notes.
The
Company’s 6.5% Convertible Senior Notes due 2023 issued in October 2018 contain certain derivative features, as described
in Note 9 - Convertible Notes; however, as of March 31, 2019 the fair value of these components recorded as a debt discount was
$0.
Note
9. Convertible Notes
Convertible
Notes Issued October 2018
On October 23, 2018 the Company completed
the offering of $10.0 million principal amount of the Company’s 6.5% Convertible Senior Notes due 2023. The notes are unsecured
and rank pari passu with the Company’s outstanding unsubordinated liabilities, including its 6.5% Convertible Senior Secured
Notes due 2023 issued in May 2018. The net proceeds of the offering after payment of offering costs were approximately $8.9 million.
The notes will mature on November 30, 2023, unless earlier converted, redeemed or repurchased. Interest on the notes accrues at
the rate of 6.5% per year and is payable in cash on each February 28, May 31, August 31 and November 30, beginning February 28,
2019. The notes are convertible into common stock at the option of the holder at any time prior to maturity at an initial conversion
price of $5.10 per share, subject to adjustment under certain circumstances.
The
Company analyzed the components of the convertible notes for embedded derivatives and the application of the corresponding accounting
treatment. This analysis determined that certain features of the notes represented derivatives that require bifurcation from the
host contract. The fair value of these components of $0 was recorded as a debt discount and will be adjusted to fair value at
the end of each future reporting period.
As
a result of the Company issuing new shares of Common Stock for a price to the public of $4.25 per share, the Company adjusted
the conversion price of the convertible notes issued on May 14, 2018 from $6.55 per share to $5.00 per share pursuant to the terms
of the Indenture. As a result of this adjustment, the associated beneficial conversion feature was increased by $3,950,839 and
recorded as a debt discount with a corresponding credit to additional paid in capital.
The
following table summarizes convertible debt as of March 31, 2019:
|
|
Maturity Date
|
|
State Interest Rate
|
|
|
Conversion
Price
|
|
|
Face Value
|
|
|
Remaining
Debt
(Discount)
|
|
|
Fair Value of
Embedded
Conversion Option
|
|
|
Carrying Value
|
|
Long Term convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.5% convertible senior secured notes
|
|
5/31/2023
|
|
|
6.50
|
%
|
|
$
|
5.00
|
|
|
$
|
15,000,000
|
|
|
$
|
(7,381,610
|
)
|
|
$
|
2,476,401
|
|
|
$
|
10,094,791
|
|
6.5% convertible senior notes
|
|
11/30/2023
|
|
|
6.50
|
%
|
|
$
|
5.10
|
|
|
$
|
10,000,000
|
|
|
$
|
(995,202
|
)
|
|
$
|
—
|
|
|
$
|
9,004,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance as of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000,000
|
|
|
$
|
(8,376,812
|
)
|
|
$
|
2,476,401
|
|
|
$
|
19,099,589
|
|
Note
10. Concentrations
Vendors
Vendor concentration as a percentage of purchases for three
and nine months ended March 31, 2019 are as follows:
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
03/31/2019
|
|
|
03/31/2018
|
|
|
03/31/2019
|
|
|
03/31/2018
|
|
Vendor 1
|
|
|
|
—
|
|
|
|
12
|
%
|
|
|
—
|
|
|
|
—
|
|
Vendor 2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
%
|
|
|
—
|
|
Customers
Customer
concentration as a percentage of revenue for three and nine months ended March 31, 2019 are as follows:
|
|
|
Nine Months
03/31/2019
|
|
|
Nine Months
03/31/2018
|
|
|
Three Months
03/31/2019
|
|
|
Three Months
03/31/2018
|
|
Customer 1
|
|
|
|
12
|
%
|
|
|
44
|
%
|
|
|
—
|
|
|
|
—
|
|
Customer 2
|
|
|
|
14
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Customer 3
|
|
|
|
11
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Customer 4
|
|
|
|
22
|
%
|
|
|
—
|
|
|
|
28
|
%
|
|
|
—
|
|
Customer 5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
%
|
|
|
—
|
|
Customer 6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
%
|
|
|
—
|
|
Customer 7
|
|
|
|
—
|
|
|
|
23
|
%
|
|
|
—
|
|
|
|
44
|
%
|
Customer 8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
%
|
Note
11. Stockholders’ Equity
Underwritten
Public Offering of Common Stock
During
the quarter ended December 31, 2018, the Company sold a total of 7,250,000 shares of its common stock at a price to the public
of $4.25 per share for aggregate gross proceeds of $30.8 million before deducting the underwriting discount and offering expenses
payable by the Company of approximately $2.1 million. The Company expects to use the proceeds of the offering to fund the Company’s
operations and growth of its business, including for capital expenditures, working capital, research and development, the commercialization
of its technology and other general corporate purposes.
During
the nine months ended March 31, 2019, the Company also issued 113,592 shares of its common stock to investors in the Company’s
private placement that closed in May 2017. These issuances were made pursuant to the price-protection provisions granted to such
investors in their subscription agreements.
Equity
Incentive Plans
During
the nine months ended March 31, 2019, the Company granted employees and directors options to purchase an aggregate of 953,455
shares of common stock with a weighted average grant date fair value of $2.82. The fair values of the Company’s options
were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
|
|
|
Nine
Months Ended
March
31, 2019
|
|
Exercise price
|
|
|
$3.78 – $8.18
|
|
Expected term (years)
|
|
|
4.00 – 7.00
|
|
Risk-free interest
rate
|
|
|
2.19 – 3.01%
|
|
Volatility
|
|
|
66 – 69%
|
|
Dividend
yield
|
|
|
0%
|
|
Weighted
Average Grant Date Fair Value of Options granted during the period
|
|
|
$2.82
|
|
Expected
term: The Company’s expected term is based on the period the options are expected to remain outstanding. The Company estimated
this amount utilizing the “Simplified Method” in that the Company does not have sufficient historical experience to
provide a reasonable basis to estimate an expected term.
Risk-free
interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.
Volatility:
The Company calculates the expected volatility of the stock price using the historical volatilities of the Company’s common
stock traded on the Nasdaq Capital Market.
Dividend
yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring
dividends in the near future.
During
the nine months ended March 31, 2019 the Company awarded certain employees and contractors grants of an aggregate of 676,880 restricted
stock units (“RSUs”) with a weighted average grant date fair value of $6.10. The RSUs will be expensed over the requisite
service period. The terms of the RSUs include vesting provisions based solely on continued service. If the service criteria are
satisfied, the RSUs will generally vest over 4 years.
During
the nine months ended March 31, 2019 the Company granted 119,500 performance-based restricted stock units (“PBRSU”)
to employees with a weighted average grant date fair value per share of $8.30. The PBRSU awards contain performance and service
conditions which must be satisfied for an employee to earn the award.
Any
portion of grants awarded to consultants and other service providers as to which the repurchase option for restricted stock awards
has not lapsed or for which an option or restricted stock unit has not vested is accrued on the Condensed Consolidated Balance
Sheet as a component of accounts payable and accrued expenses. As of March 31, 2019, and June 30, 2018, the accrued stock-based
compensation was $192,158 and $395,539, respectively.
Compensation
expense related to our stock-based awards described above was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Share based compensation expense
|
|
$
|
2,255,301
|
|
|
$
|
1,551,500
|
|
|
|
Nine Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Share based compensation expense
|
|
$
|
5,521,980
|
|
|
$
|
3,628,331
|
|
Unrecognized
stock-based compensation expense and weighted-average years to be recognized are as follows:
|
|
As
of March 31, 2019
|
|
|
|
Unrecognized
stock-
based
compensation
|
|
|
Weighted-
average years
to
be recognized
|
|
Options
|
|
$
|
3,360,742
|
|
|
|
2.02
|
|
Restricted stock
awards/units
|
|
$
|
5,070,230
|
|
|
|
1.94
|
|
Performance based
units
|
|
$
|
423,914
|
|
|
|
0.43
|
|
Note
12. Commitments and Contingencies
Operating
Leases
The
Company leased three office locations in Huntersville, NC pursuant to three- and five-year lease agreements, and one month-to-month
lease. The three-year lease agreement expired in April 2018 in connection with a move in corporate office location, the month
to month lease expired in January 2018, and the five-year lease agreement expires in November 2022. The operating leases provide
for annual real estate tax and cost of living increases and contain predetermined increases in the rentals payable during the
terms of the leases. The aggregate rent expense is recognized on a straight-line basis over the lease term.
The
total lease rental expense was $37,000 and $50,000 for the three months ended March 31, 2019 and 2018, respectively. The total
lease rental expense was $111,000 and $101,000 for the nine months ended March 31, 2019 and 2018, respectively.
The
aggregate rent expense on various equipment for the Company’s Huntersville, NC location and the NY Facility is recognized
on a straight-line basis over the lease term. The total lease rental expense was $14,000 and $1,000 for the three months ended
March 31, 2019 and 2018, respectively. The total lease rental expense was $50,000 and $72,000 for the nine months ended March
31, 2019 and 2018, respectively.
Ontario
County Industrial Development Authority Agreement
On
February 27, 2018, the Company entered into a Lease and Project Agreement (the “Lease and Project Agreement”) and
a Company Lease Agreement (the “Company Lease Agreement” and together with the Lease and Project Agreement, the “OCIDA
Agreements”), each dated as of February 1, 2018, with the Ontario County Industrial Development Agency, a public benefit
corporation of the State of New York (the “OCIDA”). Pursuant to the OCIDA Agreements, the Company will lease for $1.00
annually to the OCIDA an approximately 9.995-acre parcel of land in Canandaigua, New York, together with the improvements thereon
(including the NY Facility), and transfer title to certain related equipment and personal property to the OCIDA. The OCIDA will
lease such land and improvements back to the Company for annual rent payments specified in the Lease and Project Agreement for
the Company’s primary use as research and development, manufacturing, warehouse and professional office space in its business,
and to be subleased, in part, by the Company to various existing tenants. The Company expects substantial tax savings during the
term of the OCIDA Agreements, which expire on December 31, 2028. In addition, subject to the terms of the Lease and Project Agreement,
certain purchases and leases of eligible items will be exempt from the imposition of sales and use taxes. Subject to the terms
of the Lease and Project Agreement, the OCIDA has also granted to the Company an exemption from certain mortgage recording taxes
for one or more mortgages securing an aggregate principal amount not to exceed $12.0 million, or such greater amount as approved
by the OCIDA in its sole and absolute discretion. The benefits provided to the Company pursuant to the terms of the Lease and
Project Agreement are subject to claw back over the life of the OCIDA Agreements upon certain recapture events, including certain
events of default.
Purchase
Order
On January 14, 2019, the Company executed
a price quotation (the “Purchase Order”) pursuant to which it purchased a semiconductor lithography system (the “System”),
which will be used to pattern wafers for use in the production of the Company’s RF filter products, from ASML US, LLC (“ASML”).
Upon execution of the purchase order the Company remitted 50% of the Purchase Price and, pursuant to the terms and conditions
of the Purchase Order, the remainder of the Purchase Price will be due upon shipment and acceptance of the System.
Real
Estate Contingent Liability
In
connection with the acquisition of the NY Facility and related assets, including STC-MEMS, a semiconductor wafer-manufacturing
and MEMS operation with associated wafer-manufacturing tools, the Company agreed to pay to Fuller Road Management Corporation,
an affiliate of The Research Foundation for the State University of New York, a penalty, as set forth below, if the Company sells
the property subject to the related Definitive Real Property Purchase Agreement within three (3) years after the date of such
agreement for an amount in excess of $1,750,000, subject to certain enumerated exceptions. The penalty imposed shall be equivalent
to the amount that the sales price of the property exceeds $1,750,000 up to the maximum penalty (“Maximum Penalty”)
defined below:
|
|
Maximum
Penalty
|
Year 3, ending March 23, 2020
|
|
$
|
425,228
|
|
The
fair value of the contingent liability was calculated by an independent third-party appraisal firm, utilizing a present value
calculation based on the probability the Company sells the property triggering the contingent penalty and a discount rate of 16.8%.
The discount rate was derived from a weighted average cost of capital, modified to include the effects of the bargain purchase
price, and assumes a percentage chance of real estate sale of 25% in year three. As of March 31, 2019, and June 30, 2018, the
fair value of the contingent liability was $425,228 and $1,229,966 respectively. During the three months ended March 31, 2019
and 2018, the Company marked the contingent liability to fair value and recorded a gain of $905,183 and $635,061, respectively,
relating to the change in fair value. During the nine months ended March 31, 2019 and 2018, the Company marked the contingent
liability to fair value and recorded a gain of $804,738 and $555,756, respectively, relating to the change in fair value.
Litigation,
Claims and Assessment
From
time to time, the Company may become involved in lawsuits, investigations and claims that arise in the ordinary course of business,
including the matter described below. The Company believes it has meritorious defenses against all pending claims and intends
to vigorously pursue them. While it is not possible to predict or determine the outcomes of any pending actions, the Company believes
the amount of liability, if any, with respect to such actions, would not materially affect its financial position, results of
operations or cash flows.
On
November 5, 2018 the Company filed a Form 8-K reporting the end of employment of its principal financial officer, John T. Kurtzweil
(the “Former CFO”). Mr. Kurtzweil’s employment was terminated for cause unanimously by the Company’s Board
of Directors pursuant to the terms of his employment agreement, and not due to any disagreement concerning the Company’s
financial statements, accounting policies or accounting practices. The Former CFO disputes the termination for cause and has since
filed for an arbitration hearing pursuant to the terms of his employment agreement, and has filed a complaint under the whistleblower
provisions of the Sarbanes Oxley Act of 2002 with the Occupational Safety and Health Administration of the U.S. Department
of Labor. The Company has not recorded a loss contingency associated with the Former CFO’s termination. In accordance with
the Former CFO’s employment agreement, if it is determined that grounds for termination were for cause then the expense
to the Company would be $0. If it is determined that grounds were without cause then it would result in the cash expenditure of
approximately $206,000 representing 1 years’ salary, COBRA and cost of living expense, and prorated bonus up to the date
of termination. Additionally, the Company would record a non-cash expense of approximately $883,000 representing the immediate
full vesting of restricted stock units and stock options on the date of termination.
Tax
Credit Contingency
The
Company accrues a liability for indirect tax contingencies when it believes that it is both probable that a liability has been
incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect
ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information
is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings
change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made.
The
Company’s gross unrecognized indirect tax credits totaled $0.1 million and $0.1 million as of March 31, 2019 and June 30,
2018, respectively, and is recorded on the Condensed Consolidated Balance Sheet as a long-term liability.
Note
13. Related Party Transactions
AEG
Consulting, a firm owned by one of the Co-Chairmen of the Company’s Board of Directors, received $0 and $10,245 cash compensation
for consulting fees for the nine months ended March 31, 2019 and 2018, respectively. On November 2, 2018, the Company granted
the Co-Chairman 5,000 RSUs with a fair value on the grant date of $18,900 and stock options to purchase 10,000 shares of the Company’s
common stock with a fair value on the grant date of $25,278 for consulting services provided by AEG Consulting. Both awards vest
in four equal installments on each of the first four anniversaries of the grant date. The options carry an exercise price of $3.78
and have a term of 7 years.
Total
share-based compensation expense related to stock-based awards granted for the Co-Chairman’s consulting services was $31,854
and $8,539 for the nine months ended March 31, 2019 and 2018, respectively.
Note
14. Segment Information
Operating
segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly
by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing
performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company operates in two segments,
Foundry Fabrication Services which consists of engineering review services and STC-MEMS foundry services, and RF Product which
consists of amplifier and filter product sales, and grant revenue. The Company records all general and administrative costs in
the RF Product segment.
The
Company evaluates performance of its operating segments based on revenue and operating profit (loss). Segment information for
the three and nine months ended March 31, 2019 and 2018 are as follows:
|
|
Foundry/
Fabrication
Services
|
|
|
RF
Product
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
159,118
|
|
|
$
|
78,345
|
|
|
$
|
237,463
|
|
Grant
revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
Revenue
|
|
|
159,118
|
|
|
|
78,345
|
|
|
|
237,463
|
|
Cost
of revenue
|
|
|
176,527
|
|
|
|
122,906
|
|
|
|
299,433
|
|
Gross
margin
|
|
|
(17,409
|
)
|
|
|
(44,561
|
)
|
|
|
(61,970
|
)
|
Research
and development
|
|
|
—
|
|
|
|
5,547,341
|
|
|
|
5,547,341
|
|
General
and administrative
|
|
|
—
|
|
|
|
2,460,328
|
|
|
|
2,460,328
|
|
Income
(Loss) from Operations
|
|
$
|
(17,409
|
)
|
|
$
|
(8,052,230
|
)
|
|
$
|
(8,069,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
255,160
|
|
|
$
|
29,248
|
|
|
$
|
284,408
|
|
Grant
revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
Revenue
|
|
|
255,160
|
|
|
|
29,248
|
|
|
|
284,408
|
|
Cost
of revenue
|
|
|
304,528
|
|
|
|
3,760
|
|
|
|
308,288
|
|
Gross
margin
|
|
|
(49,368
|
)
|
|
|
25,488
|
|
|
|
(23,880
|
)
|
Research
and development
|
|
|
—
|
|
|
|
3,044,957
|
|
|
|
3,044,957
|
|
General
and administrative
|
|
|
—
|
|
|
|
2,441,992
|
|
|
|
2,441,992
|
|
Income
(Loss) from Operations
|
|
$
|
(49,368
|
)
|
|
$
|
(5,461,461
|
)
|
|
$
|
(5,510,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
566,970
|
|
|
$
|
197,318
|
|
|
$
|
764,288
|
|
Grant
revenue
|
|
|
—
|
|
|
|
109,472
|
|
|
|
109,472
|
|
Total
Revenue
|
|
|
566,970
|
|
|
|
306,790
|
|
|
|
873,760
|
|
Cost
of revenue
|
|
|
665,908
|
|
|
|
147,315
|
|
|
|
813,223
|
|
Gross
margin
|
|
|
(98,938
|
)
|
|
|
159,475
|
|
|
|
60,537
|
|
Research
and development
|
|
|
—
|
|
|
|
14,475,770
|
|
|
|
14,475,770
|
|
General
and administrative
|
|
|
—
|
|
|
|
6,705,626
|
|
|
|
6,705,626
|
|
Income
(Loss) from Operations
|
|
$
|
(98,938
|
)
|
|
$
|
(21,021,921
|
)
|
|
$
|
(21,120,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
844,893
|
|
|
$
|
37,776
|
|
|
$
|
882,669
|
|
Grant
revenue
|
|
|
—
|
|
|
|
147,232
|
|
|
|
147,232
|
|
Total
Revenue
|
|
|
844,893
|
|
|
|
185,008
|
|
|
|
1,029,901
|
|
Cost
of revenue
|
|
|
827,113
|
|
|
|
4,240
|
|
|
|
831,353
|
|
Gross
margin
|
|
|
17,780
|
|
|
|
180,768
|
|
|
|
198,548
|
|
Research
and development
|
|
|
—
|
|
|
|
9,522,353
|
|
|
|
9,522,353
|
|
General
and administrative
|
|
|
—
|
|
|
|
6,464,518
|
|
|
|
6,464,518
|
|
Income
(Loss) from Operations
|
|
$
|
17,780
|
|
|
$
|
(15,806,103
|
)
|
|
$
|
(15,788,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
80,995
|
|
|
$
|
78,351
|
|
|
$
|
159,346
|
|
Property
and equipment, net
|
|
|
295,511
|
|
|
|
15,189,359
|
|
|
|
15,484,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
191,846
|
|
|
$
|
22,813
|
|
|
$
|
214,659
|
|
Property
and equipment, net
|
|
|
465,360
|
|
|
|
12,354,809
|
|
|
|
12,820,169
|
|
Note
15. Subsequent Events
The Company is not aware of events and/or transactions occurring after the balance sheet date and before
the issue date of the financials statements that require adjustment to or disclosure in the financial statements.