References in this report to "Akoustis," the "Company," "we," "us," and "our"
refer to Akoustis Technologies, Inc. and its consolidated subsidiary, Akoustis,
Inc. each of which are Delaware corporations.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that
relate to our plans, objectives, estimates, and goals. Any and all statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Terms such as "may," "might," "would,"
"should," "could," "project," "estimate," "predict," "potential," "strategy,"
"anticipate," "attempt," "develop," "plan," "help," "believe," "continue,"
"intend," "expect," "future," and terms of similar import (including the
negative of any of the foregoing) may be intended to identify forward-looking
statements. However, not all forward-looking statements may contain one or more
of these identifying terms. Forward-looking statements in this report may
include, without limitation, statements regarding (i) the plans and objectives
of management for future operations, including plans or objectives relating to
the development of commercially viable radio frequency ("RF") filters, (ii)
projections of income (including income/loss), earnings (including
earnings/loss) per share, capital expenditures, dividends, capital structure or
other financial items, (iii) our future financial performance, including any
such statement contained in this management's discussion and analysis of
financial condition or in the results of operations included pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC"),
(iv) our ability to efficiently utilize cash and cash equivalents to support our
operations for a given period of time, (v) our ability to engage customers while
maintaining ownership of our intellectual property, and (vi) the assumptions
underlying or relating to any statement described in (i), (ii) or (iii) above.
The forward-looking statements are not meant to predict or guarantee actual
results, performance, events or circumstances and may not be realized because
they are based upon our current projections, plans, objectives, beliefs,
expectations, estimates, and assumptions and are subject to a number of risks
and uncertainties and other influences, many of which are beyond our control.
Actual results and the timing of certain events and circumstances may differ
materially from those described by the forward-looking statements as a result of
these risks and uncertainties. Factors that may influence or contribute to the
inaccuracy of the forward-looking statements or cause actual results to differ
materially from expected or desired results may include, without limitation, our
ability to continue as a going concern; our inability to obtain adequate
financing; our limited operating history; our inability to generate revenues or
achieve profitability; the results of our research and development ("R&D")
activities; our inability to achieve acceptance of our products in the market;
general economic conditions, including upturns and downturns in the industry;
our limited number of patents; failure to obtain, maintain, and enforce our
intellectual property rights; our inability to attract and retain qualified
personnel; our reliance on third parties to complete certain processes in
connection with the manufacture of our products; product quality and defects;
existing or increased competition; our ability to market and sell our products;
our inability to successfully scale our New York wafer fabrication facility and
related operations while maintaining quality control and assurance and avoiding
delays in output; our failure to innovate or adapt to new or emerging
technologies; our failure to comply with regulatory requirements; results of any
arbitration or litigation that may arise; stock volatility and illiquidity; our
failure to implement our business plans or strategies; our failure to remediate
the material weaknesses in our internal control over financial reporting; and
our failure to maintain the Trusted Foundry accreditation of our New York wafer
fabrication facility.
These and other risks and uncertainties, which are described in more detail in
our Annual Report on Form 10-K, filed with the SEC on September 13, 2019 (the
"2019 Annual Report"), could cause our actual results to differ materially from
those expressed or implied by the forward-looking statements in this report.
Readers are cautioned not to place undue reliance on forward-looking statements
because of the risks and uncertainties related to them. Except as may be
required by law, we do not undertake any obligation to update the
forward-looking statements contained in this report to reflect any new
information or future events or circumstances or otherwise.
20
Overview
Akoustis® is an emerging commercial company focused on developing, designing,
and manufacturing innovative RF filter products for the wireless industry,
including for products such as smartphones and tablets, network infrastructure
equipment, WiFi Customer Premise Equipment ("CPE") and defense applications.
Filters are critical in selecting and rejecting signals, and their performance
enables differentiation in the modules defining the RF front-end ("RFFE").
Located between the device's antenna and its digital backend, the "RFFE" is the
circuitry that performs the analog signal processing and contains components
such as amplifiers, filters and switches. We have developed a proprietary
microelectromechanical system ("MEMS") based bulk acoustic wave ("BAW")
technology and a unique manufacturing process flow, called "XBAW", for our
filters produced for use in RFFE modules. Our XBAWTM filters incorporate
optimized high purity piezoelectric materials for high power, high frequency and
wide bandwidth operation.
We believe owning the core resonator device technology, manufacturing facility
and intellectual property ("IP") to produce our RF filter designs is the most
direct and efficient means of delivering our solutions to the market.
Furthermore, our technology is based upon bulk-mode acoustic resonance, which we
believe is superior to surface-mode resonance for high-band applications that
include 4G/LTE, 5G, WiFi, and defense applications. Although some of our target
customers utilize or make the RFFE module, they may lack access to critical
ultra-high-band (UHB) filter technology needed to compete in high frequency
applications. We seek to design, manufacture, and market our RF filter products
to mobile phone original equipment manufacturers ("OEMs"), defense OEMs, network
infrastructure OEMs, and WiFi CPE OEM's to enable broader competition among the
front-end module manufacturers. We operate as a "pure-play" RF filter supplier
and align with the front-end module manufacturers who seek to acquire high
performance filters to expand their module business.
We currently build high performance RF filter circuits, using our first
generation XBAWTM wafer process, in our 120,000-square foot wafer-manufacturing
facility located in Canandaigua, New York, which we acquired in June 2017. As of
January 17, 2020, our intellectual property (IP) portfolio included 29 patents,
including a blocking patent that we have licensed from Cornell University.
Additionally, as of January 17, 2020, we have 54 pending patent applications.
These patents cover our XBAWTM RF filter technology from raw materials through
the system architectures. Where possible, we leverage both federal and state
level R&D grants to support development and commercialization of our
technology.
We are developing RF filters for 4G/LTE, 5G, WiFi and defense bands using our
proprietary resonator device models and product design kits (PDKs). As we
qualify our first RF filter products, we are engaging with target customers to
evaluate our filter solutions. Our initial designs target UHB, sub 7 GHz 4G/LTE,
5G, WiFi and defense bands. Since Akoustis owns its core technology and controls
access to its intellectual property, we expect to offer several ways to engage
with potential customers. First, we intend to engage with multiple wireless
markets, providing standardized filters that we design and offer as standard
catalog components. Second, we expect to deliver unique filters to
customer-supplied specifications, which we will design and fabricate on a
customized basis. Finally, we may offer our models and design kits for our
customers to design their own filters utilizing our proprietary technology.
We have earned minimal revenue from operations since inception, and we have
funded our operations primarily with development contracts, RF filter and
production orders, government grants, MEMS foundry and engineering services, and
sales of debt and equity securities. We have incurred losses totaling
approximately $85.8 million from inception through December 31, 2019. These
losses are primarily the result of material and processing costs associated with
developing and commercializing our technology, as well as personnel costs,
professional fees (primarily accounting and legal), and other general and
administrative ("G&A") expenses. We expect to continue to incur substantial
costs for commercialization of our technology on a continuous basis because our
business model involves materials and solid-state device technology development
and engineering of catalog and custom filter design solutions.
21
Plan of Operation
We plan to commercialize our technology by designing and manufacturing
single-band and multi-band BAW RF filter solutions in our New York wafer
fabrication facility. We expect our filter solutions will address problems (such
as loss, bandwidth, power handling, and isolation) created by the growing number
of frequency bands in the RFFE of mobile devices, infrastructure and premise
equipment to support 4G/LTE, 5G, and WiFi. We have prototyped our first
single-band low-loss BAW filter designs for 4G/LTE frequency bands, which are
dominated by competitive BAW solutions and historically cannot be addressed with
low-band, lower power handling surface acoustic wave ("SAW") technology.
To succeed, we must convince mobile phone OEMs, RFFE module manufacturers,
cellular infrastructure OEMs, WiFi CPE OEMs and military customers to use our
XBAWTMfilter technology in their systems and modules. However, since there are
two dominant BAW filter suppliers in the industry that have high-band
technology, and both utilize such technology as a competitive advantage at the
module level, we expect customers that lack access to high-band filter
technology will be open to engage with our pure-play filter company.
We plan to pursue RF filter design and R&D development agreements and
potentially joint ventures with target customers and other strategic partners,
although we cannot guarantee we will be successful in these efforts. These types
of arrangements may subsidize technology development costs and qualification,
filter design costs, and offer complementary technology and market intelligence
and other avenues to revenue. However, we intend to retain ownership of our core
technology, intellectual property, designs, and related improvements. We expect
to pursue development of catalog designs for multiple customers and to offer
such catalog products in multiple sales channels.
As of January 24, 2020, the Company had $44.4 million of cash and cash
equivalents to fund our operations, including capital expenditures, R&D,
commercialization of our technology, development of our patent strategy and
expansion of our patent portfolio, as well as to provide working capital and
funds for other general corporate purposes. Our anticipated expenses include
employee salaries and benefits, compensation paid to consultants, capital costs
for research and other equipment, costs associated with development activities
(including travel and administration), costs associated with the integration and
operation of our New York wafer fabrication facility and related operations,
legal expenses, sales and marketing costs, G&A expenses, and other costs
associated with an early stage, public technology company. We anticipate
increasing the number of employees; however, this is highly dependent on the
nature of our development efforts, and our success in commercialization. We
anticipate adding employees for R&D in both our New York and North Carolina
facilities, as well as G&A functions, to support our efforts. We expect capital
expenditures to be between $8 million and $10 million for the purchase of
equipment and software during the next 12 months.
The amounts we actually spend for any specific purpose may vary significantly
and will depend on a number of factors, including, but not limited to, the pace
of progress of our commercialization and development efforts, actual needs with
respect to product testing, R&D, market conditions and changes in or revisions
to our marketing strategies.
Commercial development of new technology, by its nature, is unpredictable.
Although we will undertake development efforts with commercially reasonable
diligence, there can be no assurance that our current cash position will be
sufficient to enable us to commercialize our technology to the extent needed to
create future sales to sustain operations. If our current cash is insufficient
for these purposes, we are unable to source additional funds on terms acceptable
to the Company (or at all), or we experience costs in excess of estimates to
continue our R&D plan, it is possible that we would not have sufficient
resources to continue as a going concern and we may be required to curtail or
suspend our operations. Even if we are able to source sufficient funds to
continue as a going concern, our technology may not be accepted, we may never
earn revenues sufficient to support our operations, and we may never be
profitable.
22
Recent Developments
On November 19, 2019 Akoustis shipped 60,000 5.6 GHz filters to an existing
distributor partner. In early December 2019, the Company received its first 5G
network infrastructure filter order for small cell base stations.
On December 16, 2019 the Company shipped two new XBAW filters to its 5G mobile
customer, bringing the total number of mobile filters shipped to the customer to
three. In December 2019, Akoustis also shipped the first sample of its wafer
level package (WLP), with the small form factor designed to penetrate the mobile
device market.
At the end of December 2019, Akoustis shipped five new S-band filters in the 2-4
GHz range to a defense customer for phased array radar applications. The Company
also shipped its tandem 5.2/5.6 GHz WiFi filter solutions to a tier-1 OEM and
received a second 5G massive MIMO network infrastructure development order from
a tier-1 customer.
Underwritten Public Offering of Common Stock
During the quarter ended December 31, 2019, the Company sold a total of
5,520,000 shares of its common stock at a price to the public of $6.25 per share
for aggregate gross proceeds of $34.5 million before deducting the underwriting
discount and offering expenses payable by the Company of approximately $2.3
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.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in our 2019
Annual Report.
Results of Operations
Three Months Ended December 31, 2019 and 2018
Revenue
The Company recorded revenue of $0.5 million during the three months ended
December 31, 2019 as compared to $0.3 million for the three months ended
December 31, 2018. Revenue recorded during the three months ended December 31,
2019 included $0.2 million of RF filter and amplifier sales and $0.3 million of
non-recurring engineering services. The RF filters sales were primarily sales of
infrastructure filters as well as WiFi filters. Revenue for the three months
ended December 31, 2018 consisted of $0.2 million of non-recurring engineering
services and $0.1 million of RF filter and amplifier sales.
Cost of Revenue
The Company recorded cost of revenue of $0.8 million in the three months ended
December 31, 2019 and $0.4 million in the three months ended December 31, 2018,
which included direct labor, direct materials and facility costs. The increase
in cost of sales was primarily related to sales of infrastructure and WiFi
filters.
Research and Development Expenses
R&D expenses were $4.9 million for the three months ended December 31, 2019 and
were $0.4 million, or 9%, higher than the prior year amount for the same period
of $4.5 million. The period-over-period increase was primarily in the areas of
R&D personnel costs. Personnel costs, including stock-based compensation, were
$2.7 million compared to $2.4 million in the prior year period, an increase of
$0.3 million or 15%. The higher personnel cost was due to additional R&D
headcount at both the Huntersville, NC location and the Company's Canandaigua NY
wafer-manufacturing facility (the "NY Facility") as well as an increase in
stock-based compensation.
General and Administrative Expense
General and administrative ("G&A") expenses include salaries and wages for
executive and administrative staff, stock-based compensation, professional fees,
insurance costs and other general costs associated with the administration of
our business. G&A expenses for the three months ended December 31, 2019 were
$2.8 million, which is an increase of $1.0 million compared to the three months
ended December 31, 2018. Year over year changes within G&A expenses include an
increase in employee compensation including stock based compensation of $0.6
million as well as an increase in professional fees of $0.3 million.
23
Other (Expense)/Income
Other expenses for the three months ended December 31, 2019 were $1.4 million,
which included debt discount amortization of $0.8 million, interest expense, net
of $0.3 million, and a change in fair value of our derivative liability of $0.3
million. Other expenses for the three months ended December 31, 2018 were $0.4
million, consisting of interest expense of $0.3 million and $0.5 million of debt
discount amortization offset by a $0.3 million reduction of our derivative
liability and interest income of $0.1 million.
Net Loss
The Company recorded a net loss of $9.3 million for the three months ended
December 31, 2019, compared to a net loss of $6.7 million for the three months
ended December 31, 2018. The period-over-period incremental loss of $2.6
million, or 38%, was primarily driven by an increase in other expenses of $1.0
million, increases in R&D related compensation of $0.4 million and increases in
general expenses, including professional fees and compensation of $0.9 million.
Six Months Ended December 31, 2019 and 2018
Revenue
The Company recorded revenue of $1.1 million during the six months ended
December 31, 2019 as compared to $0.6 million for the six months ended December
31, 2018. Revenue recorded during the six months ended December 31, 2019
included $0.4 million of RF filter and amplifier sales, $0.3 million of foundry
services, and $0.4 million of revenue for non-recurring engineering services.
The revenue for the six months ended December 31, 2018 consisted of $0.3 million
of revenue for non-recurring engineering services, $0.1 million of revenue for
foundry services, $0.1 million of grant revenue and $0.1 million of RF filter
and amplifier sales.
Cost of Revenue
The Company recorded cost of revenue of $1.1 million in the six months ended
December 31, 2019 and $0.5 million in the six months ended December 31, 2018,
which included direct labor, direct materials and facility costs. The increase
in cost of sales was primarily related to sales of infrastructure and WiFi
filters.
Research and Development Expenses
R&D expenses were $10.0 million for the six months ended December 31, 2019 and
were $1.2 million, or 14%, higher than the prior year amount for the same period
of $8.8 million. The period-over-period increase was primarily in the areas of
R&D personnel costs and R&D equipment depreciation. Personnel costs, including
stock-based compensation, were $5.8 million compared to $5.1 million in the
prior year period, an increase of $0.7 million or 14%. The higher personnel cost
was due to additional R&D headcount at both the Huntersville, NC location and
the NY Facility. Depreciation expense was $0.2 million higher than the prior
year at $1.4 million.
General and Administrative Expense
General and administrative ("G&A") expenses include salaries and wages for
executive and administrative staff, stock-based compensation, professional fees,
insurance costs and other general costs associated with the administration of
our business. G&A expenses for the six months ended December 31, 2019 were $5.6
million, which is an increase of $1.2 million compared to the six months ended
December 31, 2018. Year over year changes within G&A expenses include an
increase in employee compensation including stock compensation, of $0.5 million,
an increase in professional fees of $0.5 million and an increase in other
administrative expenses of $0.2 million.
24
Other (Expense)/Income
Other expenses for the six months ended December 31, 2019 were $2.7 million,
which included debt discount amortization of $1.5 million, interest expense of
$0.8 million, and a change in fair value of our derivative liability of $0.7
million. These expenses were partially offset by interest income of $0.2
million. Other expenses for the six months ended December 31, 2018 were $1.0
million, consisting of $0.8 million of debt discount amortization and interest
expense of $0.6 million. These were partially offset by interest income of $0.1
million and a reduction to our derivative liability of $0.2 million.
Net Loss
The Company recorded a net loss of $18.3 million for the six months ended
December 31, 2019, compared to a net loss of $14.1 million for the six months
ended December 31, 2018. The period-over-period incremental loss of $4.2
million, or 30%, was primarily driven by an increase in other expenses of $1.7
million, increases in R&D related expenses of $1.1 million and increases in
general expenses, including professional fees and compensation of $1.2 million.
Liquidity and Capital Resources
Financing Activities
The Company had $46.4 million of cash and cash equivalents on hand as of
December 31, 2019, which reflects an increase of $16.2 million compared to $30.2
million as of June 30, 2019. The $16.2 million increase is primarily due to
$32.3 million in net cash proceeds from issuance of common stock from the recent
equity raise. The Company used $11.9 million for operating activities and $4.1
million in capital expenditures for the six months ended December 31, 2019. The
Company estimates that cash on hand will fund its operations, including current
capital expense commitments beyond the next twelve months from the date of
filing of this Form 10-Q.
Balance Sheet and Working Capital
December 31, 2019 compared to June 30, 2019
As of December 31, 2019, the Company had current assets of $48.3 million made up
primarily of total cash on hand of $46.3 million. As of June 30, 2019, current
assets were $31.7 million comprised primarily of total cash on hand of $30.2
million.
Property, Plant and Equipment was $19.4 million as of December 31, 2019 as
compared to a balance of $15.2 million as of June 30, 2019. The approximate $4.2
million increase is primarily due to the purchase of R&D and manufacturing
equipment of $5.6 million, offset by depreciation of $1.4 million.
Total assets as of December 31, 2019 and June 30, 2019 were $69.3 million and
$47.9 million, respectively.
Current liabilities as of December 31, 2019 and June 30, 2019 were $3.6 million
and $3.2 million, respectively.
Long-term liabilities totaled $21.5 million as of December 31, 2019, compared to
$18.8 million as of June 30, 2019. The increase of $2.7 million was due to the
increase in convertible notes, net of debt discount and issuance costs as well
as the establishment of a right of use liability upon adoption of ASC 842 which
totaled $0.6 million.
Stockholders' equity was $44.2 million as of December 31, 2019, compared to
$26.0 million as of June 30, 2019, an increase of $18.2 million, or 70%. This
increase was primarily due to common stock issued for cash, net of issuance
costs of $32.2 million, common stock issued for services of $3.3 million,
vesting of restricted shares of $0.3 million, employee stock purchases of $0.2
million and common stock issued for payment of note interest of $0.5 million.
These were offset by the net loss for the six months ended December 31, 2019 of
$18.3 million.
25
Cash Flow Analysis
Operating activities used cash of $12.0 million during the six months ended
December 31, 2019 and $8.6 million during the 2018 comparative period. The $3.4
million period-over-period increase in cash used was attributable to higher
operating expenses associated with the ramp up of development and
commercialization activities (primarily R&D personnel and material costs).
Investing activities used cash of $4.3 million for the six months ended December
31, 2019 compared to $1.8 million for the comparative period ended December 31,
2018. The $2.5 million period-over-period increase was primarily due to
increased spend on R&D equipment.
Cash provided by financing activities was $32.5 million for the six months ended
December 31, 2019 compared to $37.6 million for the comparative period ended
December 31, 2018 due a reduction in cash received from equity and convertible
note issuances in the comparative period.
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AKOUSTIS TECHNOLOGIES, INC. 
