Akoustis Technologies(AKTS) - 2020 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Information This section warns that forward-looking statements are not guarantees and are subject to various risks and uncertainties - Forward-looking statements include plans for developing commercially viable RF filters, projections of financial items (income, EPS, capital expenditures), future financial performance, ability to utilize cash, and ability to engage customers while maintaining intellectual property ownership[7] - Key risk factors influencing actual results include limited operating history, inability to generate revenues or achieve profitability, impact of the COVID-19 pandemic, inability to obtain adequate financing, R&D results, market acceptance of products, competition, manufacturing scaling challenges, and intellectual property issues[8][9][10] Definitions and Glossary This section defines key company references and technical terminology essential for understanding the report's content - The terms 'we,' 'Akoustis,' the 'Company,' 'our,' and 'us' refer to Akoustis Technologies, Inc., a Delaware corporation, and its wholly owned consolidated subsidiary, Akoustis, Inc[12] - Key technical terms defined include Acoustic wave, AlN (Aluminum Nitride), Acoustic wave filter, Band/channel/frequency band, Bulk acoustic wave (BAW), Digital baseband, Duplexer, Filter, Group III element nitrides, Insertion Loss, Lossy, Metrology, Monolithic topology, Power Amplifier Duplexer (PAD), Piezoelectric materials, Quality factor (Q), Resonator, RF (radio frequency), RF front-end (RFFE), RF spectrum, Surface acoustic wave (SAW), TDD LTE, Tier one/two, Trusted Foundry, and Wafer[13][14][15][17][18][19][20][21][22][23][24][25] PART I ITEM 1. Business Akoustis is an emerging commercial product company developing and manufacturing innovative RF filter solutions using proprietary XBAW technology for wireless applications Overview Akoustis develops and manufactures RF filter solutions using proprietary XBAW technology for various wireless applications, targeting high-frequency bands - Akoustis is an emerging commercial product company focused on developing, designing, and manufacturing innovative RF filter solutions for the wireless industry[27] - The company has developed a proprietary microelectromechanical system (MEMS) based bulk acoustic wave (BAW) technology and a unique manufacturing process flow, called 'XBAW', for its filters[27] - Akoustis operates as a 'pure-play' RF filter supplier, providing discrete filter solutions direct to Original Equipment Manufacturers (OEMs) and aligning with front-end module manufacturers[28] Business Strategy and Customer Engagement Akoustis plans to engage customers by offering standardized and custom filters, leveraging its unique high-band filter technology while retaining IP ownership - The company intends to engage with multiple wireless markets by providing standardized filters as catalog components, delivering unique filters to customer-supplied specifications, and potentially offering models and design kits for customers to design their own filters[33] - Akoustis expects customers lacking access to high-band filter technology to be open to engaging with its pure-play filter company, as two dominant BAW filter suppliers currently use such technology as a competitive advantage[34] - The company plans to pursue RF filter design and R&D development agreements and potentially joint ventures with target customers and strategic partners, while intending to retain ownership of its core technology and intellectual property[35] Impact of COVID-19 on our Business The COVID-19 pandemic has impacted Akoustis' operations through health measures, supply chain disruptions, and anticipated negative effects on global business activity - Akoustis adopted social distancing, daily self-health attestations, and mandatory mask policies, along with new staffing plans including remote work and segregated on-site shifts, to protect employee health and safety[36] - Government measures to contain COVID-19 have impacted business meetings, deliverables to customers, and the ability to obtain materials, equipment, and services from suppliers, causing potential delays[36] - The company anticipates negative impacts on global business activity, observing delays, declining demand, and price reductions in the electronics industry due to decelerating business and consumer activity[37] Business Developments (Fiscal Year 2020) FY2020 saw significant product development and commercialization milestones, including new orders and design wins for defense, 5G mobile, and WiFi 6E filter solutions - Received a new purchase order from a strategic Defense customer for five filter solutions (2-4 GHz) and shipped five S-band filters for phased array radar applications[39][43] - Achieved design lock and pre-production of its 5.6GHz WiFi BAW filter, shipped first pre-production 5.6GHz XBAW filter to a tier-1 WiFi OEM, and announced a first design win for 5.2 and 5.6 GHz WiFi coexistence filters with a tier-1 consumer-focused OEM[39][40][46] - Secured a follow-on order for two additional 5G Mobile filter solutions, received its first 5G network infrastructure filter order for small cell base stations, and announced its first volume commercial order and design win for 5G small cell network infrastructure filters[40][41][45][46] - Added 14 filters to its product catalog in fiscal 2020, including WiFi (5.6 GHz, 5.2 GHz, 5.5 GHz WiFi-6E), 5G network infrastructure (Band n77, Band n79, CBRS), defense (3.8 GHz, S-Band), and unmanned aircraft systems (C-Band) filters[81] Financing Akoustis has incurred significant operating losses, funding operations through equity and debt, and anticipates continued costs for commercialization and R&D - The company incurred losses totaling approximately $103.6 million from May 2014 inception through June 30, 2020, primarily from material and processing costs for technology development and commercialization, personnel, and professional fees[49] - As of August 17, 2020, Akoustis had $39.3 million in cash and cash equivalents, which is expected to fund operations beyond the next 12 months, including capital expenditures, R&D, commercialization, and patent strategy[50] Recent Financing Activity (FY2020) | Activity | Gross Proceeds ($M) | Shares Issued (M) | | :------------------------------------- | :------------------ | :---------------- | | Common Stock Offering | $34.5 | 5.52 | | ATM Equity Offering Sales Agreement | $11.2 | 1.39 | | Paycheck Protection Program (PPP) Loan | $1.6 | N/A | Our Technology and Solutions Akoustis' XBAW technology offers superior performance for high-frequency, wide-bandwidth, and high-power RF filter applications, addressing critical mobile device RFFE challenges - XBAW technology uses novel high purity piezoelectric materials, fabricated into bulk-mode acoustic wave resonators and RF filters, offering high performance acoustic properties superior to lossy polycrystalline materials in existing BAW filters[54][55] - The mobile device industry faces challenges from rising demand for wireless broadband, leading to an unprecedented need for high-performance RFFE modules, increased frequency bands, and demand for filters with higher selectivity and wide bandwidth[56][57][58] - Akoustis' solutions focus on commercializing wide bandwidth RF filters for sub-6 GHz bands, enabling new PAD module or RFFE competition, and are expected to reduce overall system cost and improve RFFE performance by creating an alternative to inferior filter materials[59] Commercialization and Research and Development Akoustis is commercializing wide bandwidth RF filters and invested $20.5 million in R&D in FY2020, leading to 14 new filter introductions - The company has completed the alpha and beta phases for its first generation XBAW process technology (XB1) and began the production ramp for its first high volume tier one customer, supporting its WiFi 6 CPE product, in the fourth quarter of fiscal year 2020[67] - Research and development expense totaled $20.5 million for the year ended June 30, 2020, an 8% increase from $19.1 million in FY2019, with investments in materials advancement, resonator development, RF filter design, high yield wafer manufacturing, and filter packaging[69] - Akoustis added 14 filters to its product catalog, including WiFi (5.6 GHz, 5.2 GHz, 5.5 GHz WiFi-6E), 5G network infrastructure (Band n77, Band n79, CBRS), defense (3.8 GHz, S-Band), and unmanned aircraft systems (C-Band) filters, with 12 of these completed in fiscal 2020[81] Raw Materials Akoustis sources various raw materials for its BAW RF filter fabrication, managing a supply chain with some single-sourced substrates and purity level considerations - Akoustis sources raw materials, process gases, metals, and other supplies for fabricating BAW RF filter circuits, including two types of substrate materials (one with a single source) and various high purity metals for electrode formation[83] - The company must work with suppliers to ensure adequate supply of raw materials, process gases, and metals as it ramps from R&D into high volume manufacturing, addressing potential issues like purity level changes by source[83] Intellectual Property Akoustis protects its XBAW RF filter technology through 33 patents and 71 pending applications, along with trade secrets and contractual obligations - As of August 17, 2020, Akoustis' IP portfolio included 33 patents, with one blocking patent licensed from Cornell University, and 71 pending patent applications[31][85] - These patents cover the company's XBAW RF filter technology from raw materials through the system architectures, with owned patents expiring between 2034 and 2038[31][85] - The company relies on patents, trade secrets, copyrights, trademarks, and contractual obligations (confidentiality agreements with employees, contractors, and customers) to protect its proprietary information[84][88] Competition The RF filter market is highly concentrated, with Akoustis competing as a pure-play supplier by offering superior performance and competitive costs - The RF filter market is controlled by a small number of suppliers, including Broadcom Corporation, Murata Manufacturing Co., Ltd., Qorvo, Inc., Skyworks Solutions Inc., Taiyo Yuden Co. Ltd., and Qualcomm Incorporated[89] - Broadcom Corporation and Qorvo, Inc. dominate the high band BAW filter market, controlling a significant portion of the customer base[89] - Akoustis plans to compete as a pure-play filter supplier, offering superior performance over the full frequency range at competitive costs, but faces challenges in convincing customers of its intellectual property position, volume delivery capability, price targets, and quality/reliability[90] Employees As of June 30, 2020, Akoustis had 95 full-time and 7 part-time employees, focusing on competitive compensation to attract and retain talent - As of June 30, 2020, Akoustis had a total of 95 full-time employees plus 7 part-time and temporary employees[91] - The company prioritizes hiring and retaining the best talent by establishing competitive compensation and benefits packages to enhance its ability to recruit experienced personnel and key technologists[91] Government Regulations Akoustis' business is subject to various federal and state regulations, with noncompliance potentially leading to investigations, sanctions, and adverse financial impacts - Akoustis' business and products are subject to regulation by federal and state agencies, including the FCC (radio frequency emission), FTC (consumer protection), Department of Commerce (import/export), CPSC (product safety), and EPA (environmental)[92] - Compliance with FCC rules for RF emissions may require certification, verification, or registration of RF filters, potentially increasing development and production costs and delaying market launch[93] - Noncompliance with applicable regulations could result in investigations, sanctions, mandatory product recalls, enforcement actions, fines, damages, civil and criminal penalties, or injunctions, materially adversely affecting the business and financial condition[96] ITEM 1A. Risk Factors This section outlines material risks to Akoustis' operations, financial condition, and future prospects, including limited operating history, COVID-19 impact, competition, and debt obligations - The company has a limited operating history and has incurred approximately $103.6 million in net losses since inception, making it difficult to forecast future prospects and achieve profitability[99][101] - The COVID-19 pandemic has negatively impacted manufacturing capabilities, supply chain, and sales efforts, leading to potential delays in product launches and prolonged dependence on capital raising[106][107][109] - Akoustis faces intense competition in the RF filter market, dominated by larger players, which could lead to pricing pressures, decreased gross margins, and loss of market share if the company cannot keep pace with rapid technological changes and achieve market acceptance for its products[114][118][132][135] - The company's long-term success depends on obtaining, maintaining, and enforcing its intellectual property rights, with risks including pending applications not resulting in issued patents, challenges to patent validity, and the high costs of litigation[179][182][189] - Akoustis has substantial debt obligations ($25.0 million in convertible notes) requiring significant cash or common stock for servicing, and restrictive covenants may limit business and financing activities[211][216][217] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings ITEM 2. Properties Akoustis maintains its headquarters in Huntersville, NC, and operates a 120,000 square foot MEMS fabrication facility in Canandaigua, NY, under a lease-back agreement - The company's headquarters in Huntersville, NC, is 22,000 square feet with a lease expiring in February 2023[247] - Akoustis owns a 120,000 square foot MEMS fabrication facility in Canandaigua, NY, acquired in June 2017, which houses 50 employees[247] - The NY Facility is subject to a first priority lien to The Bank of New York Mellon Trust Company, N.A. and a lease-back agreement with the Ontario County Industrial Development Agency (OCIDA) for tax savings[247] ITEM 3. Legal Proceedings Akoustis is not currently involved in any material pending legal proceedings, nor is it aware of any such proceedings contemplated by governmental authorities - The company is not currently aware of any material pending legal proceedings to which it is a party or of which any of its property is the subject[249] - No such proceedings are contemplated by any governmental authority[249] ITEM 4. Mine Safety Disclosures This item is not applicable to Akoustis Technologies, Inc PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities Akoustis' common stock trades on Nasdaq, with 38.1 million shares outstanding as of August 17, 2020, and no anticipated dividends - The company's Common Stock is traded on the Nasdaq Capital Market under the symbol 'AKTS'[251] - As of August 17, 2020, there were 38,067,550 shares of Common Stock issued and outstanding, held by approximately 119 stockholders of record[5][251] - Akoustis has never paid any dividends on its capital stock and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future, intending to retain future earnings for business growth[252] Equity Compensation Plan Information (as of June 30, 2020) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance (c) | | :------------------------------------------------ | :-------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :--------------------------------------------------------------- | | Equity compensation plans approved by security holders - options | 2,294,415 | $5.84 | 3,758,226 | | Equity compensation plans approved by security holders – restricted stock units | 1,580,586 | $0.00 | — | | Total | 3,875,001 | | 3,758,226 | ITEM 6. Selected Financial Data This item is not applicable to Akoustis Technologies, Inc ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Akoustis' financial performance, condition, liquidity, and capital resources for the fiscal years ended June 30, 2020 and 2019 Overview and Plan of Operation Akoustis develops and manufactures RF filter solutions using proprietary XBAW technology for wireless applications, targeting sub-7 GHz bands and retaining IP ownership - Akoustis is focused on developing, designing, and manufacturing innovative RF filter solutions for the wireless industry using its proprietary MEMS-based bulk acoustic wave (BAW) technology, 'XBAW'[263] - Initial RF filter designs target ultra-high band, sub-7 GHz 4G/LTE, 5G, WiFi, and defense bands, aiming to address problems such as loss, bandwidth, power handling, and isolation in RF front-ends[264] - The company plans to pursue RF filter design and R&D development agreements and potentially joint ventures with target customers and strategic partners, while intending to retain ownership of its core technology and intellectual property[265] Critical Accounting Policies Akoustis' financial statements require significant management judgment and estimates for critical accounting policies, including derivative liabilities and stock-based compensation - The company evaluates options, warrants, convertible notes, and other contracts to determine if they qualify as derivatives, marking their fair value to market each balance sheet date and recording changes as other income or expense[268] - Fair value measurements for financial assets and liabilities are categorized into a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than quoted prices; Level 3: significant unobservable inputs)[277][278] - Stock-based compensation expense is recognized for all equity-based payments, net of forfeitures, with the fair value of option awards estimated using the Black-Scholes model and restricted stock awards at grant date fair value[279][281] Results of Operations (Year Ended June 30, 2020 Compared to Year Ended June 30, 2019) FY2020 saw a 27.7% revenue increase to $1.8 million, but higher operating expenses led to a net loss of $36.1 million, up 23.6% from FY2019 Key Financial Results (in thousands, except per share data) | Metric | FY2020 | FY2019 | Change ($) | Change (%) | | :-------------------------------------------- | :---------- | :---------- | :---------- | :--------- | | Revenue | $1,790 | $1,443 | $347 | 24.0% | | Cost of Revenue | $2,414 | $1,013 | $1,401 | 138.3% | | Gross Profit | $(624) | $430 | $(1,054) | -245.1% | | Research and Development Expenses | $20,523 | $19,075 | $1,448 | 7.6% |\n| General and Administrative Expenses | $10,891 | $8,922 | $1,969 | 22.1% | | Other (Expense) Income | $(4,102) | $(1,681) | $(2,421) | 144.0% | | Net Loss | $(36,140) | $(29,248) | $(6,892) | 23.6% | | Net Loss Per Common Share - Basic and Diluted | $(1.07) | $(1.06) | $(0.01) | 0.9% | - The increase in revenue was primarily due to a $0.5 million increase in filter revenue and a $0.2 million increase in engineering services, partially offset by a $0.3 million decrease in MEMS revenue (a product line exited in FY2020) and a $0.1 million decrease in grant revenue[284] - The increase in net loss was primarily driven by higher interest expense ($1.7 million), increased personnel costs ($2.3 million, mainly R&D), higher R&D/Fabrication supplies ($0.2 million), increased depreciation expense ($0.6 million), higher general expenses ($0.8 million, mainly professional fees), and an increase in valuation of contingent liabilities ($0.6 million)[289] Liquidity and Capital Resources Cash on hand increased to $44.4 million by June 30, 2020, primarily from common stock sales and a $1.6 million PPP loan, supporting operations beyond 12 months - Cash on hand increased by $14.2 million to $44.4 million as of June 30, 2020, compared to $30.2 million as of June 30, 2019[291] - The increase in cash was primarily due to $43.1 million from common stock sales, $1.6 million from a PPP loan, and $0.7 million from various equity plans, partially offset by $21.3 million used in operating activities and $9.9 million for capital expenditures[291] - Akoustis entered into an ATM Equity Offering Sales Agreement to sell up to $50 million in common stock, having sold approximately $11.2 million gross proceeds through this program during FY2020[292] - The company received a $1.6 million PPP Loan under the CARES Act, with payments deferred for 16 months and potential for forgiveness based on the use of proceeds for payroll, mortgage interest, rent, and utility costs[293] Balance Sheet and Working Capital (June 30, 2020 Compared to June 30, 2019) Total assets increased by $23.5 million, driven by cash and property, while liabilities and stockholders' equity also grew due to debt and capital raises Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | June 30, 2019 | Change ($) | | :--------------------------- | :------------ | :------------ | :--------- | | Total Current Assets | $46,203 | $31,721 | $14,482 | | Property and Equipment, net | $23,605 | $15,178 | $8,427 | | Total Assets | $71,433 | $47,949 | $23,484 | | Total Current Liabilities | $6,130 | $3,662 | $2,468 | | Total Long-term Liabilities | $23,808 | $18,332 | $5,476 | | Total Liabilities | $29,938 | $21,994 | $7,944 | | Total Stockholders' Equity | $41,495 | $25,955 | $15,540 | - The increase in Property, Plant and Equipment, net, was primarily due to $11.4 million in equipment purchases for the NY facility, partially offset by $3.0 million in depreciation[296] - The increase in long-term liabilities was primarily due to changes in convertible debt offerings ($3.4 million), the addition of the PPP loan ($1.6 million), and a new lease liability ($0.5 million)[298] - Stockholders' equity increased by $15.5 million, driven by a $51.7 million increase in Additional Paid-in Capital (from common stock issuance, stock for services, warrant/option exercise, and stock for note interest), which was partially offset by the $36.1 million net loss[299] Cash Flow Analysis (Year Ended June 30, 2020 Compared to the Year Ended June 30, 2019) In fiscal year 2020, cash used in operating activities increased to $21.3 million, reflecting higher operating expenses for development and commercialization. Investing activities also used more cash, primarily for R&D equipment. However, financing activities provided a substantial $45.5 million, mainly from common stock issuances, leading to a net increase in cash, cash equivalents, and restricted cash of $14.3 million Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | FY2020 | FY2019 | Change ($) | | :-------------------------------------------------------- | :---------- | :---------- | :--------- | | Net Cash Used in Operating Activities | $(21,305) | $(17,668) | $(3,637) | | Net Cash Used in Investing Activities | $(9,891) | $(4,891) | $(5,000) | | Net Cash Provided by Financing Activities | $45,450 | $37,896 | $7,554 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $14,254 | $15,337 | $(1,083) | | Cash, Cash Equivalents and Restricted Cash - End of Period | $44,408 | $30,154 | $14,254 | - Cash used in operating activities increased by $3.6 million year-over-year, attributable to higher operating expenses associated with the ramp-up of development and commercialization activities, R&D personnel, material costs, G&A costs, and depreciation expense[300] - Cash used in investing activities increased by $5.0 million year-over-year, primarily due to increased spend on R&D equipment[301] - Cash provided by financing activities increased by $7.5 million year-over-year, due to additional proceeds from common stock issuances, partially offset by lower proceeds from convertible notes issued compared to the prior period[302] Off-Balance Sheet Transactions Akoustis Technologies, Inc. did not engage in any off-balance sheet arrangements as of June 30, 2020 - The Company did not engage in any 'off-balance sheet arrangements' as of June 30, 2020[303] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to Akoustis Technologies, Inc ITEM 8. Financial Statements and Supplemental Data This section presents the audited consolidated financial statements for Akoustis Technologies, Inc. for the fiscal years ended June 30, 2020 and 2019, prepared in accordance with GAAP Report of Independent Registered Public Accounting Firm Marcum LLP issued an unqualified opinion on Akoustis' consolidated financial statements for FY2020 and FY2019, noting the change in lease accounting - Marcum LLP audited the consolidated financial statements and expressed an unqualified opinion, stating they present fairly, in all material respects, the financial position and results of operations in conformity with GAAP[307] - The company changed its method of accounting for leases in fiscal 2020 due to the adoption of ASC Topic 842, Leases[308] - The auditor was not engaged to perform an audit of the company's internal control over financial reporting and, accordingly, expressed no opinion on its effectiveness[310] Consolidated Balance Sheets The consolidated balance sheets show increased total assets, liabilities, and stockholders' equity for Akoustis as of June 30, 2020, compared to 2019 Consolidated Balance Sheets (in thousands) | Assets | June 30, 2020 | June 30, 2019 | | :------------------------------------ | :------------ | :------------ | | Cash and cash equivalents | $44,308 | $30,054 | | Total current assets | $46,203 | $31,721 | | Property and equipment, net | $23,605 | $15,178 | | Total Assets | $71,433 | $47,949 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $6,130 | $3,662 | | Convertible notes payable, net | $21,628 | $18,215 | | Loans payable | $1,591 | — | | Total long-term liabilities | $23,808 | $18,332 | | Total Liabilities | $29,938 | $21,994 | | Total Stockholders' Equity | $41,495 | $25,955 | Consolidated Statements of Operations Akoustis' FY2020 statements show increased revenue but a negative gross profit and a higher net loss of $36.1 million due to rising expenses Consolidated Statements of Operations (in thousands, except per share data) | Metric | FY2020 | FY2019 | | :-------------------------------------------- | :---------- | :---------- | | Revenue | $1,790 | $1,443 | | Cost of revenue | $2,414 | $1,013 | | Gross profit | $(624) | $430 | | Research and development | $20,523 | $19,075 | | General and administrative expenses | $10,891 | $8,922 | | Total operating expenses | $31,414 | $27,997 | | Loss from operations | $(32,038) | $(27,567) | | Total Other (expense) income | $(4,102) | $(1,681) | | Net loss | $(36,140) | $(29,248) | | Net loss per common share - basic and diluted | $(1.07) | $(1.06) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $41.5 million in FY2020, driven by significant capital raises that offset the accumulated deficit from net losses Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | June 30, 2018 | June 30, 2019 | June 30, 2020 | | :-------------------------------------------- | :------------ | :------------ | :------------ | | Common Shares Outstanding | 22,203 | 30,141 | 37,990 | | Common Stock Par Value | $22 | $30 | $38 | | Additional Paid In Capital | $52,074 | $93,399 | $145,072 | | Accumulated Deficit | $(38,246) | $(67,474) | $(103,615) | | Total Stockholders' Equity | $13,850 | $25,955 | $41,495 | - Additional paid-in capital increased by $51.7 million in FY2020, primarily from $42.9 million in net proceeds from common stock issuance, $6.7 million for common stock issued for services, and $1.0 million for common stock issued in payment of convertible note interest[299][319] - The accumulated deficit increased by $36.1 million in FY2020 due to the net loss incurred during the year[299][319] Consolidated Statements of Cash Flows FY2020 cash flows show increased cash usage in operating and investing activities, offset by strong financing from stock issuances, leading to a net cash increase Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | FY2020 | FY2019 | | :-------------------------------------------------------- | :---------- | :---------- | | Net Cash Used in Operating Activities | $(21,305) | $(17,668) | | Net Cash Used in Investing Activities | $(9,891) | $(4,891) | | Net Cash Provided by Financing Activities | $45,450 | $37,896 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $14,254 | $15,337 | | Cash, Cash Equivalents and Restricted Cash - End of Period | $44,408 | $30,154 | - Cash used in operating activities increased by $3.6 million in FY2020, primarily due to higher operating expenses associated with development and commercialization activities[300][323] - Cash used for machinery and equipment in investing activities increased to $9.75 million in FY2020 from $4.75 million in FY2019[323] - Financing activities provided $45.5 million in FY2020, mainly from $43.15 million in proceeds from common stock issuance, contributing to a net increase in cash and equivalents[302][323] Notes to Consolidated Financial Statements These notes provide detailed information supporting the financial statements, covering organization, liquidity, accounting policies, revenue, assets, liabilities, and commitments Note 1. Organization Akoustis Technologies, Inc. develops and manufactures innovative RF filter products using its proprietary XBAW™ technology and an IDM business model - Akoustis Technologies, Inc. is focused on developing, designing, and manufacturing innovative radio frequency ('RF') filter products for the wireless industry[326] - The company utilizes its proprietary XBAW™ technology, based on novel, high purity acoustic piezoelectric materials and a unique microelectromechanical system ('MEMS') wafer process[326] - Akoustis leverages an integrated device manufacturing ('IDM') business model to develop and sell high performance RF filters[326] Note 2. Liquidity Despite $44.4 million cash and $40.1 million working capital, recurring operating losses raise substantial doubt about Akoustis' ability to continue as a going concern - As of June 30, 2020, the Company had cash and cash equivalents of $44.4 million and working capital of $40.1 million[327] - Recurring operating losses and $21.3 million in net cash used in operating activities for FY2020 raise substantial doubt about the Company's ability to continue as a going concern[327] - As of August 17, 2020, the Company had $39.3 million of cash and cash equivalents, expected to fund operations beyond the next twelve months, but there is no assurance of obtaining additional funds or sustained profitability[328] Note 3. Summary of significant accounting policies This note details Akoustis' significant accounting policies, including GAAP basis, consolidation, estimates for fair value, stock-based compensation, and income taxes - The Company's consolidated financial statements are prepared in accordance with GAAP and SEC rules, requiring management to make estimates and assumptions for critical accounting estimates[329][331] - Critical accounting estimates include the fair value of long-lived assets, valuation allowance for deferred tax assets (full valuation allowance due to losses), valuation of equity instruments, derivative liabilities (using Monte Carlo simulation and with-and-without method), and contingent real estate liability[333][334][335][336][337] - Key policies cover cash and cash equivalents (highly liquid investments < 3 months), restricted cash ($100k for convertible notes), inventory (lower of cost or NRV, FIFO), property and equipment (cost less depreciation, straight-line), intangible assets (patents/trademarks, amortized over 15 years for patents), and impairment of long-lived assets[341][342][343][344][345] - The company adopted ASC Topic 842, Leases, in fiscal 2020, recognizing a right-of-use asset and lease liability of $0.7 million, and ASU 2018-07 for non-employee share-based payment accounting, which had no material impact[370][372] Note 4. Revenue Recognition from Contracts with Customers Akoustis adopted ASC Topic 606, recognizing revenue from foundry services and product sales at a point in time or over time, with a $0.7 million backlog - Akoustis adopted ASC Topic 606, 'Revenue from Contracts with Customers,' effective July 1, 2018, using a five-step process to recognize revenue[373][374] - Primary revenue streams include Foundry Fabrication Services (MEMS foundry services and Non-Recurring Engineering) and Product Sales (RF filters and amps)[379][380] Revenue by Segment (in thousands) | Segment | FY2020 Revenue | FY2019 Revenue | | :--------------------------- | :------------- | :------------- | | Foundry Fabrication Services | $991 | $1,058 | | Product Sales | $799 | $276 | | Grant Revenue | — | $109 | | Total Revenue | $1,790 | $1,443 | - Revenue expected to be recognized from the backlog of unsatisfied performance obligations for the next fiscal year was $0.7 million at June 30, 2020[388] Note 5. Property and equipment Akoustis' net property and equipment increased to $23.6 million in FY2020, primarily due to $11.4 million in equipment purchases for the NY facility Property and Equipment, Net (in thousands) | Category | June 30, 2020 | June 30, 2019 | | :----------------------- | :------------ | :------------ | | Land | $1,000 | $1,000 | | Building | $3,000 | $3,000 | | Equipment | $24,746 | $13,611 | | Leasehold Improvements | $964 | $949 | | Software | $294 | $161 | | Furniture & Fixtures | $11 | $11 | | Computer Equipment | $267 | $203 | | Total | $30,282 | $18,935 | | Less: Accumulated depreciation | $(6,677) | $(3,757) | | Total, net | $23,605 | $15,178 | - The approximate $8.4 million year-over-year increase in Property, Plant and Equipment, net, is primarily due to the purchase of $11.4 million in equipment for the NY facility, partially offset by $3.0 million in depreciation[296][390] - Depreciation expense was $2.9 million for the year ended June 30, 2020, compared to $2.4 million in 2019[391] - As of June 30, 2020, equipment with a net book value of $5.6 million had not yet been placed in service and was not depreciated[391] Note 6. Accounts payable and accrued expenses Accounts payable and accrued expenses increased to $5.9 million as of June 30, 2020, driven by higher accounts payable and accrued salaries Accounts Payable and Accrued Expenses (in thousands) | Category | June 30, 2020 | June 30, 2019 | | :------------------------------- | :------------ | :------------ | | Accounts payable | $2,135 | $248 | | Accrued salaries and benefits | $2,478 | $2,163 | | Accrued professional fees | $193 | $315 | | Accrued utilities | $138 | $193 | | Accrued interest | $137 | $137 | | Accrued good received not invoiced | $396 | $69 | | Other accrued expenses | $422 | $86 | | Totals | $5,899 | $3,211 | - Total accounts payable and accrued expenses increased by $2.7 million from June 30, 2019, to June 30, 2020[392] Note 7. Derivative Liabilities Akoustis' derivative liabilities, primarily from convertible note conversion options, were valued at $1.11 million as of June 30, 2020, using Monte Carlo simulation Fair Value of Derivative Liabilities (in thousands) | Metric | FY2020 | FY2019 | | :------------------------------------------------------------------- | :----- | :----- | | Balance, June 30 | $1,110 | $955 | | Change in fair value of derivative liabilities (included in other (expense) income) | $155 | $(150) | Weighted Average Valuation Assumptions for Derivative Liabilities | Assumption | June 30, 2020 | June 30, 2019 | | :------------------------ | :-------------- | :------------ | | Remaining term (years) | 2.92-3.42 | 3.92 | | Expected volatility | 70% | 49% | | Risk-free interest rate | 0.18%-0.20% | 1.73% | | Dividend yield | 0.00 | 0.00% | - The fair value of derivative liabilities is computed using a Monte Carlo simulation and the with-and-without method, with changes recorded as other income or expense in the consolidated statements of operations[272][273][354][355] Note 8. Convertible Notes Akoustis had $25.0 million in convertible notes outstanding as of June 30, 2020, with specific conversion prices, interest terms, and make-whole provisions Convertible Debt Summary (as of June 30, 2020, in thousands) | Note Type | Maturity Date | Interest Rate | Conversion Price | Face Value | Remaining Debt (Discount) | Fair Value of Embedded Conversion Option | Carrying Value | | :-------------------------------------- | :------------ | :------------ | :--------------- | :--------- | :------------------------ | :--------------------------------------- | :------------- | | 6.5% convertible senior secured notes | 5/31/2023 | 6.50% | $5.00 | $15,000 | $(3,918) | $894 | $11,976 | | 6.5% convertible senior notes | 11/30/2023 | 6.50% | $5.10 | $10,000 | $(564) | $216 | $9,652 | | Ending Balance as of June 30, 2020 | | | | $25,000| $(4,482) | $1,110 | $21,628 | - The May 2018 notes ($15.0 million principal) mature on May 31, 2023, accrue 6.5% interest (payable in cash and/or stock), and have a conversion price of $5.00 per share (adjusted from $6.55) Holders have a one-time put right prior to May 31, 2021, with a make-whole payment for early conversion[399][401] - The October 2018 notes ($10.0 million principal) mature on November 30, 2023, accrue 6.5% interest (payable in cash), and have a conversion price of $5.10 per share The company may redeem these notes under certain stock price conditions, and holders have a one-time put right on November 30, 2021[402][403][404] - Second Supplemental Indentures were entered into on April 17, 2020, to permit the incurrence of indebtedness made available through the CARES Act[406] Note 9. Loans Payable Akoustis received a $1.6 million PPP Loan in May 2020, with a two-year maturity, 1.00% interest, and potential for forgiveness based on use of proceeds - Akoustis, Inc. received a $1.6 million PPP Loan on May 20, 2020, under the CARES Act, with a two-year maturity and 1.00% annual interest[408] - Payments under the PPP Loan are deferred for the first sixteen months, and the company is obligated to apply for loan forgiveness based on the use of proceeds for payroll costs, mortgage interest, rent, and utility costs[408] - No assurance is provided that Akoustis, Inc. will obtain forgiveness of the PPP Loan in whole or in part[408] Note 10. Concentrations In FY2020, one vendor accounted for 12% of purchases, and the top five customers each contributed 10% to 19% of total revenue Vendor Concentration (Percentage of Purchases) | Vendor | FY2020 | | :------- | :----- | | Vendor 1 | 12% | Customer Concentration (Percentage of Revenue) | Customer | FY2020 | FY2019 | | :--------- | :----- | :----- | | Customer 1 | 19% | 12% | | Customer 2 | 19% | — | | Customer 3 | 14% | 31% | | Customer 4 | 11% | — | | Customer 5 | 10% | — | Note 11. Stockholders' Equity Stockholders' equity increased significantly in FY2020 due to $45.7 million from common stock sales and various equity incentive plans - During FY2020, Akoustis sold 5,520,000 shares of common stock for $34.5 million gross proceeds and 1,392,661 shares through an ATM program for $11.2 million gross proceeds[411][412] - The 2018 Stock Incentive Plan, approved by stockholders, reserved 6,000,000 shares, with 3,758,226 shares remaining available for future grants as of June 30, 2020[415] Stock-Based Compensation Expense (in thousands) | Category | FY2020 | FY2019 | | :------------------------------- | :----- | :----- | | Research and Development | $3,454 | $4,182 | | General and Administrative | $3,280 | $3,058 | | Total | $6,734 | $7,240 | - As of June 30, 2020, the company had $2.1 million in unrecognized stock-based compensation expense for outstanding options (amortized over 2 years) and $6.5 million for unvested restricted stock awards/units (amortized over 2.07 years)[422][426] Note 12. Commitments and contingencies Akoustis' commitments include leases, a lease-back agreement, and a settled arbitration, with a contingent real estate liability expiring in March 2020 - The company amended its Huntersville, NC office lease, expanding space to 22,000 sq ft and extending the term to February 2023, resulting in a $0.2 million increase in the right-of-use asset and liability[434] Lease Information (in thousands) | Metric | FY2020 | June 30, 2020 | | :------------------------------------ | :---------- | :------------ | | Operating Lease Expense | $219 | N/A | | Operating lease right-of-use asset | N/A | $699 | | Operating lease liability-current | N/A | $231 | | Operating lease liability-non current | N/A | $472 | | Weighted Average Remaining Lease Term | N/A | 2.75 Years | | Weighted Average Discount Rate | N/A | 12.47% | - The contingent real estate liability related to the acquisition of the STC-MEMS Business, which imposed a penalty if the property was sold above $1.75 million within three years, was reduced to zero as of June 30, 2020, due to the lapse of the sale restriction period[440][441] - Akoustis settled all pending disputes with its former principal financial officer for an all-inclusive settlement amount of $375 thousand in cash in FY2020[443] Note 13. Related Party Transactions Related party transactions in FY2020 included $40 thousand in stock-based compensation for consulting and a $20 thousand equipment purchase from the CEO's brother - Total stock-based compensation expense related to the Co-Chairman's consulting services was $40 thousand for the year ended June 30, 2020[446] - On October 11, 2019, the Company issued 2,500 shares of common stock to the brother of the Company's Chief Executive Officer in exchange for equipment with a fair market value of $20 thousand[446] Note 14. Income Taxes Akoustis reported a 0.00% income tax provision, with $24.3 million in deferred tax assets fully offset by a valuation allowance due to cumulative losses - The income tax provision was 0.00% for both the years ended June 30, 2020, and June 30, 2019[450] Deferred Tax Assets and Liabilities (in thousands, as of June 30, 2020) | Category | Amount | | :------------------------------- | :----- | | Net Operating Loss Carryforwards | $20,542 | | Stock-based compensation | $2,422 | | Credits | $869 | | Other | $484 | | Total Deferred Tax Assets | $24,317 | | Convertible debt discount | $(472) | | Accumulated depreciation/basis differences | $(1,150) | | Total Deferred Tax Liabilities | $(1,622) | | Valuation Allowance | $(22,695) | | Net Deferred Tax Assets | $0 | - A full valuation allowance of approximately $22.7 million was recorded against deferred tax assets as of June 30, 2020, due to a history of cumulative losses, indicating that the benefits are not more likely than not to be realized[454] - The CARES Act, enacted in March 2020, did not have a material impact on the financial statements due to the company's full valuation allowance position[448] Note 15. Segment Information Akoustis operates in two segments: Foundry Fabrication Services and RF Filters, with performance evaluated based on revenue and operating profit/loss - Akoustis operates in two segments: Foundry Fabrication Services (engineering review services and STC-MEMS foundry services) and RF Filters (amplifier and filter product sales, and grant revenue)[458] Segment Performance (Year ended June 30, 2020, in thousands) | Metric | Foundry Fabrication Services | RF Filters | Total | | :-------------------------- | :--------------------------- | :--------- | :---- | | Revenue | $991 | $799 | $1,790 | | Cost of revenue | $703 | $1,711 | $2,414 | | Gross margin | $288 | $(912) | $(624) | | Research and development | — | $20,523 | $20,523 | | General and administrative | $14 | $10,877 | $10,891 | | Income/(Loss) from Operations | $274 | $(32,312) | $(32,038) | Segment Performance (Year ended June 30, 2019, in thousands) | Metric | Foundry Fabrication Services | RF Filters | Total | | :-------------------------- | :--------------------------- | :--------- | :---- | | Revenue | $1,058 | $276 | $1,334 | | Grant Revenue | — | $109 | $109 | | Cost of revenue | $811 | $202 | $1,013 | | Gross margin | $247 | $183 | $430 | | Research and development | — | $19,075 | $19,075 | | General and administrative | $50 | $8,872 | $8,922 |\n| Loss from Operations | $197 | $(27,764) | $(27,567) | Note 16. Subsequent Events There were no subsequent events requiring disclosure ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Akoustis reported no changes in or disagreements with its accountants on accounting and financial disclosure matters for FY2020 ITEM 9A. Controls and Procedures Management concluded that Akoustis' disclosure controls and internal control over financial reporting were effective as of June 30, 2020, after remediating prior weaknesses - Management, with the participation of the CEO and Interim CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[463] - Material weaknesses in internal control over financial reporting identified in the FY2019 Annual Report were remediated during fiscal year 2020, and management concluded that internal control over financial reporting was effective as of June 30, 2020[465] - As a non-accelerated filer, Akoustis is no longer required to provide an auditor's attestation of management's assessment of internal control over financial reporting[466] ITEM 9B. Other Information There is no other information required to be disclosed PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from Akoustis' definitive proxy statement for its 2020 annual meeting ITEM 11. Executive Compensation Information for this item is incorporated by reference from Akoustis' definitive proxy statement for its 2020 annual meeting ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from Akoustis' definitive proxy statement for its 2020 annual meeting ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from Akoustis' definitive proxy statement for its 2020 annual meeting ITEM 14. Principal Accountant Fees and Services Information for this item is incorporated by reference from Akoustis' definitive proxy statement for its 2020 annual meeting PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including consolidated financial statements and an extensive exhibit index - The consolidated financial statements, including Balance Sheets, Statements of Income and Comprehensive Income, Statements of Equity, Statements of Cash Flows, and Notes to Consolidated Financial Statements, are filed as part of this report[474] - All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto[475] - The Exhibit Index includes various documents such as the Plan of Conversion, Asset Purchase Agreement, Certificates of Incorporation, Indentures for convertible notes, Grant Agreements, Stock Incentive Plans, Employee Stock Purchase Plan, Promissory Note (PPP Loan), and certifications[477][478]