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 RF filter products for the mobile wireless device industry, including for
products such as smartphones and tablets, cellular infrastructure equipment, and WiFi premise equipment. 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 resonators that are the building blocks for
the RF filter, the Company has developed a fundamentally new single-crystal acoustic materials and device technology manufactured
with its proprietary XBAW process. Filters are critical in selecting and rejecting signals, and their performance enables differentiation
in the modules defining the RFFE.
The
Company’s common stock is listed on the Nasdaq Capital Market under the symbol AKTS.
Note
2. Liquidity
On
October 23, 2018, the Company sold 7,250,000 shares of the Company’s common stock in an underwritten public offering. The
Company granted the underwriters an option to purchase, for a period of 30 calendar days from October 19, 2018, up to an additional
1,087,500 shares of common stock. The Company estimates that the net proceeds from the common stock offering after payment of
issuance costs of approximately $2.3 million are approximately $28.5 million, or approximately $32.9 million if the underwriters
exercise their over-allotment option in full, in each case, after deducting the underwriting discount and estimated offering expenses
payable by the Company.
Additionally,
on October 23, 2018 the Company completed an offering of $10.0 million principal amount of the Company’s 6.5% Convertible
Senior Secured Notes due 2023. The net proceeds of the offering after payment of offering costs of approximately $1.1 million
are approximately $8.9 million.
At
September 30, 2018, the Company had cash and cash equivalents of $9.1 million and working capital of $8.4 million. The Company
has incurred recurring operating losses, and has experienced net cash used in operating activities of $4.7 million for the three
months ended September 30, 2018 which raise substantial doubt about the Company’s ability to continue as a going concern
within one year after the issuance date. However, as a result of the convertible note offering and common stock offerings described
above, as of October 25, 2018 the Company had $45.9 million of cash and cash equivalents which alleviated any substantial doubt
about the Company’s ability to continue as a going concern. These funds will be used to fund the Company’s operations,
including capital expenditures, R&D, commercialization of our technology, development of our patent strategy and expansion
of our patent portfolio, as well as to provide working capital and funds for other general corporate purposes. These funds are
sufficient to fund our operations beyond the next twelve months from the date of filing of this Form 10-Q.
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 September 30, 2018 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. These 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.
Revenue Recognition from Contracts with Customers
On
July 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts
with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and,
in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under
existing accounting principles generally accepted in the U.S. GAAP including identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation.
The
Company adopted this guidance and related amendments as of the first quarter of fiscal 2019, applying the modified retrospective
transition method. The Company has determined that there was a $20,415 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 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 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 September 30, 2018:
|
|
|
Foundry
Services
Revenue
|
|
|
RF
Filter Revenue
|
|
|
Total
Revenue
with Customers
|
|
MEMS
|
|
|
$
|
117,607
|
|
|
$
|
—
|
|
|
$
|
117,607
|
|
NRE
|
|
|
|
30,475
|
|
|
|
—
|
|
|
|
30,475
|
|
Filters/Amps
|
|
|
|
—
|
|
|
|
55,467
|
|
|
|
55,467
|
|
Total
|
|
|
$
|
148,082
|
|
|
$
|
55,467
|
|
|
$
|
203,549
|
|
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). Revenues
recognized during the quarter that were included in the beginning balance of deferred revenue were $25,438. Deferred revenues
increased by $43,041 due to invoicing in excess of revenue recognition for NRE projects with point in time treatment. Additionally,
contract assets, which represents contracts in which more revenue has been recognized than invoiced, increased by $6,612.
The
Company’s accounts receivable balance from contracts with customers represents an unconditional right to receive consideration.
Payments are due within one year of completion of the performance obligation and subsequent invoicing and therefore do not include
significant financing components. To date there have been no impairment losses on accounts receivable , and contract assets and
contract liabilities recorded on the Condensed Consolidated Balance Sheets were immaterial in the periods presented.
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) at the end of the reporting period was $0.4 million at September 30, 2018.
Grant
Revenue
The
Company applies for the grants from various government bodies (state & federal), such as the National Science Foundation (“NSF”)
to support research and development. In addition, the Company is eligible for “matching awards” from state boards
to provide additional funds to the Company to supplement the funds awarded under the Federal grant program. The Company records
grant revenue as a part of revenue from operations due to the fact that grant revenue is viewed as an ongoing function of its
intended operations. The revenue from grants is not viewed as “incidental” or “peripheral” which would
result in the presentation of grant revenue as “Other income”. The Company recognizes nonrefundable grant revenue
when the performance obligations have been met, application has been submitted and approval is reasonably assured.
Loss
Per Share
Basic
net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number
of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when
losses are reported, which is the case for the three months ended September 30, 2018 and 2017 presented in these condensed consolidated
financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their
inclusion would be anti-dilutive.
The
Company had the following common stock equivalents at September 30, 2018 and 2017:
|
|
September
30,
2018
|
|
|
September
30,
2017
|
|
Convertible
Notes
|
|
|
2,290,077
|
|
|
|
—
|
|
Options
|
|
|
1,364,859
|
|
|
|
675,000
|
|
Warrants
|
|
|
728,493
|
|
|
|
602,632
|
|
Total
|
|
|
4,383,429
|
|
|
|
1,277,632
|
|
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 513,425 shares and 1,566,078 as of September 30, 2018 and 2017, 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, including the reclassification
related to an amendment of warrant agreements to eliminate a derivative liability feature, did not have an impact on net loss
as previously reported
.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued 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)
. 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 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features;
II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”
. Part I of this update addresses the
complexity of accounting for certain financial instruments with down round features. Down round features are features of certain
equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of
future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments
(such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument
or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities
from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending
content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments
of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update
do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2018. The Company is evaluating the effect that ASU 2017-11 will have on its financial statements and related
disclosures.
In
June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07,
Compensation – Stock Compensation (Topic718):
Improvements to Nonemployee Share-Based Payment Accounting
. Under the new standard, companies will no longer be required to
value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date
under ASC718 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 recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying condensed consolidated financial statements.
Note
4. Property and Equipment
Property
and equipment consisted of the following as of September 30, 2018 and June 30, 2018:
|
|
Estimated
Useful
Life
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
Land
|
|
n/a
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Building
|
|
11 years
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Equipment
|
|
2-10 years
|
|
|
9,924,788
|
|
|
|
9,126,755
|
|
Other
|
|
*
|
|
|
1,309,532
|
|
|
|
1,057,854
|
|
|
|
|
|
|
15,234,320
|
|
|
|
14,184,609
|
|
Less: Accumulated
depreciation
|
|
|
|
|
(1,942,624
|
)
|
|
|
(1,364,440
|
)
|
Total
|
|
|
|
$
|
13,291,696
|
|
|
$
|
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 $578,184 and $233,310 for the three months ended September 30, 2018 and 2017, respectively.
Note
5. Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following at September 30, 2018 and June 30, 2018:
|
|
September
30, 2018
|
|
|
June 30,
2018
|
|
Accounts
payable
|
|
$
|
354,766
|
|
|
$
|
139,152
|
|
Accrued salaries
and benefits
|
|
|
602,481
|
|
|
|
505,463
|
|
Accrued bonuses
|
|
|
443,016
|
|
|
|
750,442
|
|
Accrued stock-based
compensation
|
|
|
195,786
|
|
|
|
395,539
|
|
Accrued professional
fees
|
|
|
206,650
|
|
|
|
293,024
|
|
Accrued utilities
|
|
|
92,754
|
|
|
|
103,277
|
|
Accrued interest
|
|
|
81,250
|
|
|
|
127,292
|
|
Accrued good received
not invoiced
|
|
|
51,216
|
|
|
|
160,199
|
|
Other
accrued expenses
|
|
|
86,155
|
|
|
|
119,044
|
|
Totals
|
|
$
|
2,114,074
|
|
|
$
|
2,593,432
|
|
Note
6. 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 7 - 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 three months ended September 30, 2018:
|
|
Fair Value
Measurement
Using Level 3
Inputs
|
|
|
|
Total
|
|
Balance, July 1, 2018
|
|
$
|
1,104,701
|
|
Change
in fair value of derivative liabilities
|
|
|
151,299
|
|
Balance, September
30, 2018
|
|
$
|
1,256,000
|
|
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:
|
|
|
|
|
|
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
Risk free
interest rate
|
|
|
2.96
|
%
|
|
|
2.73
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
45
|
%
|
|
|
42
|
%
|
Remaining term (years)
|
|
|
4.67
|
|
|
|
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.
Note
7. Convertible Notes
On
May 14, 2018 the Company completed the offering of $15.0 million principal amount of the Company’s 6.5% Convertible Senior
Secured Notes due 2023. The net proceeds of the offering after payment of offering costs were approximately $13.1 million. The
notes will mature on May 31, 2023, unless earlier converted, redeemed or repurchased. Interest on the notes accrues at the rate
of 6.5% per year and is payable at the Company’s option quarterly in cash and/or freely tradable shares of the Company’s
common stock, subject to certain limitations.
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 (i.e, the interest make-whole payment and the qualifying
fundamental change payments) represented derivatives that require bifurcation from the host contract. The fair value of these
components of $1,158,800 was recorded as a debt discount and will be adjusted to fair value at the end of each future reporting
period.
|
|
September
30, 2018
|
|
|
June 30,
2018
|
|
Principal
|
|
$
|
15,000,000
|
|
|
$
|
15,000,000
|
|
Debt Discount
|
|
|
(4,389,177
|
)
|
|
|
(4,640,069
|
)
|
Derivative
Liabilities
|
|
|
1,256,000
|
|
|
|
1,104,701
|
|
Total
|
|
$
|
11,866,823
|
|
|
$
|
11,464,632
|
|
Note
8. Concentrations
Vendors
For
the three months ended September 30, 2018, one vendor represented approximately 27% of the Company’s purchases.
For
the three months ended September 30, 2017, no vendors represented 10% or more of the Company’s purchases.
Customers
For
the three months ended September 30, 2018, four customers represented 40%, 17%, 15%, and 14%, respectively, of the Company’s
non-grant related revenue.
For
the three months ended September 30, 2017, three customers represented 59%, 25%, and 12%, respectively, of the Company’s
non-grant related revenue.
Note
9. Stockholders’ Equity
Equity
incentive plans
During
the three months ended September 30, 2018, the Company granted employees and directors options to purchase an aggregate of
26,000 shares of common stock with a (weighted average) grant date fair value of $4.57. The fair values of the
Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model.
During
the three months ended September 30, 2018 the Company awarded certain employees and contractors grants of an
aggregate of 164,000 restricted stock units (“RSUs”) with a weighted average grant date fair value of $8.46. 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 three months ended September 30, 2018 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 September 30, 2018 and June 30, 2018, the accrued stock-based
compensation was $195,786 and $395,539, respectively.
Compensation
expense related to our stock-based awards described above was as follows:
|
|
Three
Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Share based
compensation expense
|
|
$
|
2,098,311
|
|
|
$
|
597,880
|
|
Unrecognized
stock-based compensation expense and weighted-average years to be recognized are as follows:
|
|
As
of September 30, 2018
|
|
|
|
Unrecognized stock-
based compensation
|
|
|
Weighted-
average years
to be recognized
|
|
Options
|
|
$
|
2,266,962
|
|
|
|
2.46
|
|
Restricted stock awards/units
|
|
$
|
5,115,052
|
|
|
|
1.51
|
|
Performance based units
|
|
$
|
960,561
|
|
|
|
0.87
|
|
Note 10. Grant Agreement
On
July 24, 2018 the Company executed a grant agreement with the Town of Canandaigua, through the Community Development Block Grant.
The purpose of the grant is to provide financing in support of the purchase and installation of new machinery and equipment at
its fabrication facility in Canandaigua, New York (the “NY Facility”) made between June 27, 2017 and June 27, 2019.
The grant is subject to certain terms and conditions and allows for disbursement of up to $734,000 in grants. As of September
30, 2018, the Company utilized $0 to support the purchase and installation of new machinery and equipment.
Note
11. 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, and the five-year
lease agreement expires in November 2022. The operating leases provide for annual real estate tax and cost of living increases
and contain predetermined increases in the rentals payable during the terms of the leases. The aggregate rent expense is recognized
on a straight-line basis over the lease term. The total lease rental expense was $36,803 and $17,107 for the three months ended
September 30, 2018 and 2017, respectively.
The
aggregate rent expense on various equipment for the Huntersville, NC location and the NY Facility is recognized on a straight-line
basis over the lease term. The total lease rental expense was $19,712 and $59,399 for the three months ended September 30,
2018 and 2017, respectively.
Ontario
County Industrial Development Authority Agreement
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.
Real
Estate Contingent Liability
In
connection with the acquisition of the NY Facility and related assets, including STC-MEMS, a semiconductor wafer-manufacturing
and microelectromechanical systems (“MEMS”) operation with associated wafer-manufacturing tools, the Company agreed
to pay to Fuller Road Management Corporation, an affiliate of The Research Foundation for the State University of New York, a
penalty, as set forth below, if the Company sells the property subject to the related Definitive Real Property Purchase Agreement
within three (3) years after the date of such agreement for an amount in excess of $1,750,000, subject to certain enumerated exceptions.
The penalty imposed shall be equivalent to the amount that the sales price of the property exceeds $1,750,000 up to the maximum
penalty (“Maximum Penalty”) defined below:
|
|
|
Maximum
Penalty
|
|
Year 2, ending June 26, 2019
|
|
|
$
|
3,973,333
|
|
Year 3, ending June 26, 2020
|
|
|
$
|
1,986,667
|
|
The
fair value of the contingent liability was calculated by an independent third-party appraisal firm, utilizing a present value
calculation based on the probability the Company sells the property triggering the contingent penalty and a discount rate of 17.2%.
The discount rate was derived from a weighted average cost of capital, modified to include the effects of the bargain purchase
price. As of September 30, 2018 and June 30, 2018, the fair value of the contingent liability was $1,276,890 and $1,229,966 respectively.
During the three months ended September 30, 2018 and 2017, the Company marked the contingent liability to fair value and recorded
a loss of ($46,924) and $0, respectively, relating to the change in fair value.
Litigation,
Claims and Assessments
From
time to time, the Company may become involved in lawsuits, investigations and claims that arise in the ordinary course of business.
The Company believes it has meritorious defenses against all pending claims and intends to vigorously pursue them. While it is
not possible to predict or determine the outcomes of any pending actions, the Company believes the amount of liability, if any,
with respect to such actions, would not materially affect its financial position, results of operations or cash flows.
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 September 30, 2018 and June
30, 2018, respectively, and is recorded on the Condensed Consolidated Balance Sheet as a long-term liability.
Note
12. Related Party Transactions
Consulting
Services
AEG
Consulting, a firm owned by one of the Company’s Co-Chairmen of the Company’s Board of Directors, received $0 and
$5,475 cash compensation for consulting fees for the three months ended September 30, 2018 and 2017, respectively. In addition,
share based compensation expense related to stock based awards granted for the Co-Chairman’s consulting services was $15,829
and $0 for the three months ended September 30, 2018 and 2017, respectively
On
September 27, 2017, the Company granted a restricted stock award to a director for board advisory services provided from January
2017 to June 2017, prior to the director’s appointment to the Board of Directors on July 14, 2017. Share based compensation
expense related to this award was $10,121 and $0 for the three months ended September 30, 2018 and 2017, respectively.
Note
13. Segment Information
Operating
segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly
by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing
performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company operates in two segments,
Foundry Fabrication Services which consists of engineering review services and STC-MEMS foundry services; and RF Filters which
consists of amplifier and filter product sales, and grant revenue. The Company records all of its general and administrative costs
in the RF Filters segment.
The
Company evaluates performance of its operating segments based on revenue and operating profit (loss). Segment information for
the three months ended September 30, 2018 and 2017 are as follows:
|
|
Foundry
Fabrication
Services
|
|
|
RF Filters
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
148,082
|
|
|
$
|
55,467
|
|
|
$
|
203,549
|
|
Grant revenue
|
|
|
—
|
|
|
|
109,472
|
|
|
|
109,472
|
|
Total Revenue
|
|
|
148,082
|
|
|
|
164,939
|
|
|
|
313,021
|
|
Cost of revenue
|
|
|
133,027
|
|
|
|
10,817
|
|
|
|
143,844
|
|
Gross margin
|
|
|
15,055
|
|
|
|
154,122
|
|
|
|
169,177
|
|
Research and development
|
|
|
—
|
|
|
|
4,406,182
|
|
|
|
4,406,182
|
|
General and administrative
|
|
|
—
|
|
|
|
2,459,540
|
|
|
|
2,459,540
|
|
Income (Loss) from Operations
|
|
$
|
15,055
|
|
|
$
|
(6,711,600
|
)
|
|
$
|
(6,696,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
297,900
|
|
|
$
|
3,040
|
|
|
$
|
300,940
|
|
Cost of revenue
|
|
|
193,029
|
|
|
|
200
|
|
|
|
193,229
|
|
Gross margin
|
|
|
104,871
|
|
|
|
2,840
|
|
|
|
107,711
|
|
Research and development
|
|
|
—
|
|
|
|
3,004,365
|
|
|
|
3,004,365
|
|
General and administrative
|
|
|
—
|
|
|
|
1,832,622
|
|
|
|
1,832,622
|
|
Income (Loss) from Operations
|
|
$
|
104,871
|
|
|
$
|
(4,834,147
|
)
|
|
$
|
(4,729,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
275,442
|
|
|
$
|
43,551
|
|
|
$
|
318,993
|
|
Property and equipment, net
|
|
|
453,109
|
|
|
|
12,838,587
|
|
|
|
13,291,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
14. Subsequent Events
Public
Offering of Common Stock
On
October 23, 2018, the Company completed the offering of 7,250,000 shares of its common stock pursuant to an underwriting agreement
with Oppenheimer & Co. Inc., as the representative of several underwriters. In addition, pursuant to the underwriting agreement
the Company granted the underwriters in the offering an option to purchase, for a period of 30 calendar days from October 19,
2018, up to an additional 1,087,500 shares of common stock solely to cover over-allotments, if any. The net proceeds from the
common stock offering are approximately $28.5 million, or approximately $32.9 million if the underwriters exercise the over-allotment
option in full, in each case, after deducting the underwriting discount and estimated offering expenses payable by the Company.
Convertible
Notes Offering
On
October 23, 2018 the Company completed the offering of $10.0 million principal amount of the Company’s 6.5% Convertible
Senior Secured Notes due 2023. The notes are unsecured and rank pari passu with the Company’s outstanding unsubordinated
liabilities. The net proceeds of the offering after payment of offering costs are 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
holders of the notes will have a one-time right exercisable prior to November 30, 2021 (the “put date”), in the manner
described in the indenture, to require us to repurchase for cash all (but not less than all) of such holders’ notes on the
put date at a purchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest
to, and including, the put date.
The
Company may redeem the notes in certain cases, in whole or in part, at a redemption price equal to 100% of the principal amount
plus accrued and unpaid interest on such principal, if any, up to the redemption date so long as the closing price of the Company’s
common stock exceeds a certain amount in excess of the then-effective conversion price of the notes. If the Company redeems the
notes, the holders of the notes will also receive an interest make-whole payment equal to the remaining scheduled interest payments
that would have been made on the notes redeemed had such notes remained outstanding through the maturity date, which shall be
paid in cash and, in certain cases, may be paid in shares of the Company’s common stock.
Additionally,
if a “fundamental change” (as defined in the indenture governing the notes) occurs at any time prior to the maturity
date, subject to certain conditions, holders of the notes will have the right, at their option, to require the Company to repurchase
for cash all or part of such holder’s notes at a purchase price equal to 100% of the principal amount of the notes to be
repurchased, plus accrued and unpaid interest to the fundamental change repurchase date. In addition, if a holder elects to convert
its notes following the occurrence of a “qualifying fundamental change” (as defined in the indenture governing the
notes) prior to the maturity date, the Company will, under certain circumstances, make a payment to such holder for conversion
equal to $130 per $1,000 of aggregate principal of notes so surrendered for conversion, which shall be paid in cash and, in certain
cases, may be paid in shares of the Company’s common stock.
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
References
in this report to “Akoustis,” the “Company,” “we,” “us,” and “our”
refer to Akoustis Technologies, Inc. and its consolidated subsidiary, Akoustis, Inc. each of which are Delaware corporations.