UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
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As of November 11, 2024, there were
AKOUSTIS TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Akoustis Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Assets | ||||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Inventory | ||||||||
| Investment tax credits receivable | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangibles, net | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Litigation related contingent liability | ||||||||
| Notes payable | ||||||||
| Deferred revenue | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Convertible notes payable, net | ||||||||
| Operating lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
1
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses | ||||||||
| Research and development | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income | ||||||||
| Interest (expense) income | ( | ) | ( | ) | ||||
| Litigation related contingent liability | ( | ) | ||||||
| Other (expense) income | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ||||||||
| Total other (expense) income | ( | ) | ||||||
| Net loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Income tax expense | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See accompanying notes to the condensed consolidated financial statements.
2
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)
| For the Three Months Ended September 30, 2024 | ||||||||||||||||||||
| Common Stock | Additional Paid In |
Accumulated | Stockholders’ Equity | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock-based compensation | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued in exercise of warrants | ( | ) | ||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||
| Common Stock | Additional Paid In | Accumulated | Stockholders’ Equity | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | | |||||||||||||
| Cumulative-effect adoption of ASU 2016-13 | — | ( | ) | ( | ) | |||||||||||||||
| ESPP Purchase | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
Akoustis Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Amortization of operating lease right of use asset | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Loss on disposal of fixed assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Notes payable | ||||||||
| Litigation related contingent liability | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for property, plant and equipment | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | ( | ) | ( | ) | ||||
| Cash, Cash Equivalents and Restricted Cash - Beginning of Period | ||||||||
| Cash, Cash Equivalents and Restricted Cash - End of Period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Income taxes | ||||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Accounts receivable applied against notes payable | ||||||||
| Fixed assets included in accounts payable and accrued expenses | ||||||||
See accompanying notes to the condensed consolidated financial statements
4
AKOUSTIS TECHNOLOGIES, INC.
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
Note 1. Organization
Akoustis Technologies, Inc. (the “Company”)
was incorporated on
Note 2. Going Concern and Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2024, the Company had cash and cash
equivalents of $
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 for annual financial statements. 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, 2024 are not necessarily indicative of the results that may be expected for the year ending June 30, 2025 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 October 8, 2024, as amended on October 11, 2024 (the “2024 Annual Report”).
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Akoustis, Inc., RFM Integrated Device, Inc. and Grinding & Dicing Services, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
5
Significant Accounting Policies and Estimates
The Company’s significant accounting policies are disclosed in Note. 3 Summary of Significant Accounting Policies in the 2024 Annual Report. Since the date of the 2024 Annual Report, there have been no material changes to the Company’s significant accounting policies. The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes thereto. The policies, estimates and assumptions include valuing equity securities, derivative liabilities, deferred taxes and related valuation allowances, contingent consideration, goodwill, intangible assets, revenue recognition, and the fair values of long-lived assets. Actual results could differ from the estimates.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07 Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures to enhance disclosures about significant segment expenses. This ASU is effective for the Company’s fiscal year 2025 and interim periods in fiscal year 2026. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on our financial statement disclosures related to its annual report for fiscal year 2025.
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures that requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for the Company’s fiscal year 2026. Early adoption is permitted. The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2026.
Note 4. Revenue Recognition from Contracts with Customers
Disaggregation of Revenue
The Company’s primary revenue streams include fabrication services and product sales across multiple geographic regions, primarily the Americas, Asia and Europe.
Fabrication Services
Fabrication services revenue includes Non-Recurring Engineering (“NRE”)
and backend wafer services. For the backend wafer service contracts, products are delivered to the customer at the completion of the service
which represents satisfaction of the performance obligation as well as transfer of title. On NRE contracts, the majority of the contracts
include language which provides for an enforceable right to payment for performance completed to date, rather than upon completion of
the contract. NRE revenue is generally recognized over the period during which the work is performed using a formula that accounts for
the actual costs or expenses incurred, which generally include labor cost, fabrication and materials, as a percentage of total estimated
budget for the completion of the NRE contract. Any revenues earned but not yet billed to the customer as of the date of consolidated financial
statements are recorded as contract assets and are included in other current assets on the condensed consolidated balance sheet. When
invoicing occurs prior to revenue recognition a contract liability is recorded. The Company recognized $
Product Sales
Product sales revenue consists of sales of RF filters 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.
| Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| Americas | $ | $ | $ | |||||||||
| Asia | ||||||||||||
| Europe | ||||||||||||
| Total | $ | $ | $ | |||||||||
6
| Fabrication Services Revenue | Product Sales Revenue | Total Revenue with Customers | ||||||||||
| Americas | $ | $ | $ | |||||||||
| Asia | ||||||||||||
| Europe | ||||||||||||
| Total | $ | $ | $ | |||||||||
Performance Obligations
The Company has determined that contracts for product sales revenue and fabrication services revenue involve one performance obligation, which is delivery of the final product.
Contract Balances
| Contract Assets | Contract Liability | |||||||
| Balance, June 30, 2024 | $ | $ | ||||||
| Closing, September 30, 2024 | ||||||||
| Increase/(Decrease) | $ | ( |
) | $ | ||||
| Balance, June 30, 2023 | $ | $ | ||||||
| Closing, September 30, 2023 | ||||||||
| Increase/(Decrease) | $ | ( |
) | $ | ||||
7
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 Sheets). The amount of revenue recognized in the three months ended September 30, 2024,
that was included in the opening contract liability balance was $
Contract assets are recorded when revenue recognized
exceeds the amount invoiced. The difference between the opening and closing balances of the Company’s contract assets and contract
liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The
amount of contract assets invoiced in the three months ended September 30, 2024, that was included in the opening contract asset balance
was $
Backlog of Remaining Customer Performance Obligations
Revenue expected to be recognized and recorded as sales during the
remainder of this fiscal year from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at September
30, 2024 was $
Note 5: Inventory
| September 30, 2024 | June 30, 2024 | |||||||
| Raw Materials | $ | $ | ||||||
| Work in Process | ||||||||
| Finished Goods | ||||||||
| Total Inventory | $ | $ | ||||||
Note 6. Property and Equipment, net
| Estimated Useful Life | September 30, 2024 | June 30, 2024 | ||||||||
| Land | $ | $ | ||||||||
| Building and leasehold improvements | ||||||||||
| Equipment | ||||||||||
| Computer Equipment & Software | ||||||||||
| Total | ||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
| (*) |
The Company recorded depreciation expense of $
As of September 30, 2024, equipment with a net
book value totaling $
8
Note 7. Goodwill
We perform an annual test for goodwill impairment during our last fiscal quarter. We will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
During the three months ended September 30, 2024,
we did not identify any events or circumstances that would require an interim goodwill impairment test. We do not amortize goodwill as
it has been determined to have an indefinite useful life. The carrying amount of goodwill as of September 30, 2024 and June 30, 2024 was
$
Note 8. Accounts Payable and Accrued Expenses
| September 30, 2024 | June 30, 2024 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries and benefits | ||||||||
| Accrued goods received not invoiced | ||||||||
| Accrued professional fees | ||||||||
| Other accrued expenses | ||||||||
| Totals | $ | $ | ||||||
Note 9. Notes Payable
Convertible Senior Notes due 2027
| Maturity Date | Stated Interest Rate | Conversion Price | Face Value | Remaining Debt (Discount) | Fair Value of Embedded Derivatives | Carrying Value | ||||||||||||||||||||
| Long Term convertible notes payable | ||||||||||||||||||||||||||
| % | $ | $ | $ | ( | ) | $ | | $ | ||||||||||||||||||
| Ending Balance as of September 30, 2024 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Maturity Date | Stated Interest Rate | Conversion Price | Face Value | Remaining Debt (Discount) | Fair Value of Embedded Derivatives | Carrying Value | ||||||||||||||||||||
| Long Term convertible notes payable | ||||||||||||||||||||||||||
| % | $ | $ | $ | ( | ) | $ | | $ | ||||||||||||||||||
| Ending Balance as of June 30, 2024 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
Interest expense on the Notes during the three
months ended September 30, 2024 included contractual interest of $
9
GDSI Acquisition Promissory Note
The Company issued a secured promissory note (the “Promissory
Note”) in the original principal amount of $
Short Term Note
In June 2024, the Company issued a secured note (the “Customer
Note”) in the original principal amount of $
Note 10. Concentrations
Customers
| Three Months 09/30/2024 | Three Months 09/30/2023 | |||||||
| Customer 1 | % | |||||||
| Customer 2 | % | |||||||
| Customer 3 | % | |||||||
| Three Months 09/30/2024 | Three Months 09/30/2023 | |||||||
| Customer 1 | % | |||||||
| Customer 2 | % | % | ||||||
| Customer 3 | % | |||||||
Vendors
| Three Months 09/30/2024 | Three Months 09/30/2023 | |||||||
| Vendor 1 | % | |||||||
| Vendor 2 | % | |||||||
| Vendor 3 | % | |||||||
10
Note 11. Stockholders’ Equity (Deficit)
Equity Incentive Plans
During the three months ended September
30, 2024 the Company awarded certain employees grants of an aggregate of approximately
| Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Research and Development | $ | ( | ) | $ | ||||
| General and Administrative | ( | ) | $ | |||||
| Cost of revenue | ||||||||
| Total | $ | ( | ) | $ | ||||
| As of September 30, 2024 | ||||||||
| Unrecognized stock-based compensation | Weighted- average years to be recognized | |||||||
| Options | $ | |||||||
| Restricted stock units | $ | |||||||
Nasdaq Stock Market notification
On October 24, 2023, the Company received notification from the Listing
Qualifications Department of The Nasdaq Stock Market, or Nasdaq, stating that the Company did not comply with the minimum $
On August 19, 2024, the Company received notice from the Staff indicating
that the bid price for the Common Stock had closed at $
Additionally, as previously disclosed, on October 10, 2024, the Company
received a written notice from the Staff indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1), which
requires companies listed on The Nasdaq Capital Market to maintain a minimum of $
11
The Company appealed the Delisting Determination and, on October 8, 2024, presented its compliance plans in respect of the Bid Price Requirement and the Stockholders’ Equity Requirement at a hearing before the Nasdaq Hearings Panel (the “Panel”). On October 14, 2024, the Company received a decision from the Panel granting its request for continued listing on The Nasdaq Capital Market, subject to the following conditions:
| ● | On or before December 17, 2024, the Company must demonstrate compliance with the Bid Price Requirement; and |
| ● | On or before January 31, 2025, the Company shall provide the Panel an update regarding its efforts to regain compliance with the Stockholders’ Equity Requirement. |
Note 12. Leases
The Company leases office space in Huntersville,
NC, Carrollton, TX, San Jose, CA and Taiwan and leases equipment in Canandaigua, NY. Its leases have remaining lease terms of up to
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||
| Operating Lease Expense | $ | $ | ||||||
| Classification on the Condensed Consolidated Balance Sheet | September 30, 2024 | June 30, 2024 | ||||||||
| Assets | ||||||||||
| Operating lease assets | Other non-current assets | $ | $ | |||||||
| Liabilities | ||||||||||
| Other current liabilities | Current liabilities | |||||||||
| Operating lease liabilities | Other non-current liabilities | |||||||||
| Weighted Average Remaining Lease Term: | ||||||||||
| Operating leases | ||||||||||
| Weighted Average Discount Rate: | ||||||||||
| Operating leases | % | % | ||||||||
12
| For the year ending June 30, | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments (undiscounted cash flows) | ||||
| Less imputed interest | ( | ) | ||
| Total | $ | |||
Note 13. Commitments and Contingencies
Ontario County Industrial Development Authority Agreement
On February 27, 2018, the Company entered into
a Lease and Project Agreement (the “Lease and Project Agreement”) and a Company Lease Agreement (the “Company Lease
Agreement” and together with the Lease and Project Agreement, the “Agreements”), each dated as of February 1, 2018,
with the Ontario County Industrial Development Agency, a public benefit corporation of the State of New York (the “OCIDA”).
Pursuant to the Agreements, the Company will lease for $
Litigation, Claims and Assessments
Qorvo Inc. vs. Akoustis Technologies, Inc., DE Case 1:21-cv-01417-JPM
On October 4, 2021, the Company was named as a defendant in a complaint filed by Qorvo, Inc. (“Qorvo”) in the United States District Court for the District of Delaware alleging, among other things, infringement of U.S. Patent No. 7,522,018 (“the ’018 Patent”) and U.S. Patent No. 9,735,755 (“the ’755 Patent”), false advertising, false patent marking, and unfair competition. The complaint alleges that the defendants misappropriated proprietary information, made misleading statements about the characteristics of certain of its products, and sold products infringing on certain of the plaintiff ’s patents. The plaintiff seeks an injunction enjoining the Company from the alleged infringement and damages, including punitive and statutory enhanced damages, in an unspecified amount. The Company filed a motion to dismiss all of the claims other than the direct patent infringement claims, but the court permitted the plaintiff to file an amended complaint which the court subsequently determined was sufficient for pleading purposes. The Court denied the Company’s motion in May 2022. The Court held a claims construction hearing in November 2022, issuing its claim construction order on March 15, 2023. On February 8, 2023, Qorvo filed a second amended complaint adding allegations of misappropriation of trade secrets, racketeering activities, and civil conspiracy. Fact discovery closed on November 15, 2023 and expert discovery closed on January 26, 2024.
On February 1, 2024, the Company filed a motion for partial summary judgment in its favor with respect to Qorvo’s claims of false advertising, false patent marking, unfair competition, misappropriation of trade secrets, violation of the RICO Act, and civil conspiracy. In its motion, the Company also moved for summary judgment in its favor regarding Qorvo’s claim of infringement regarding its ’755 Patent with respect to newer designs of certain Company BAW filters. That same day, Qorvo filed a motion seeking partial summary judgment in its favor with respect to the Company’s defenses of invalidity regarding the ’018 Patent and the ’755 Patent.
13
On February 9, 2024, the Company filed Motions to Exclude Expert Testimony of Qorvo’s damages expert. That same day, Qorvo filed Motions to Exclude Expert Testimony of the Company’s damages expert and one of the Company’s technical experts.
On April 25, 2024, the court granted the Company’s Motion for Partial Summary Judgment with respect to Qorvo’s false patent marking and RICO claims, but denied the remainder of the Company’s motion. That same day, the court granted in part Qorvo’s Motion to Exclude Testimony of one of Akoustis’ expert technical witnesses. On April 30, 2024, the court denied each party’s Motion to Exclude the Expert Witness Testimony of the other party’s damages expert.
On May 2, 2024, the court granted Qorvo’s Motion for Partial Summary Judgment with respect to the validity of the ’018 Patent and the ’755 Patent.
The trial for Qorvo Inc. vs. Akoustis Technologies,
Inc., DE Case 1:21-cv-01417-JPM commenced on May 6, 2024 and, on May 17, 2024, a jury verdict
was entered in favor of plaintiff, Qorvo Inc., and against the Company, which awarded Qorvo approximately $
On September 9, 2024, the District Court issued
an Order Granting in Part and Denying in Part Plaintiff’s Motion for Attorneys’ Fees (the “Attorneys’ Fees Order”).
The Attorneys’ Fees Order awarded Qorvo approximately $
On September 10, 2024, the District Court issued an Order on Pre- and
Post-Judgment Interest (the “Judgment Interest Order”. The Judgment Interest Order awarded Qorvo approximately $
On October 11, 2024, the District Court issued an order granting in part and denying in part Qorvo’s motion for permanent injunctive relief, and immediately after entered its Permanent Injunction (the “Injunction Order”). The Injunction Order provides that:
| ● | the Company is permanently enjoined from possessing any confidential information copied or derived from certain trade secrets that the jury found the Company to have misappropriated (“Qorvo Trade Secret Information”), selling or distributing any product made using Qorvo Trade Secret Information, and promoting or otherwise providing services that use Qorvo Trade Secret Information; |
| ● | the Company is required to engage, at its expense, an e-discovery vendor to assist with the identification, collection and removal of any Qorvo confidential information and Qorvo Trade Secret Information from any of the Company’s databases, document management systems, email accounts, computers and other storage media, and paper files; |
| ● | for a period of four years from the issuance of the Order, Qorvo will have the right to conduct audits of the Company through an independent third party, a maximum of once per calendar year, with the expense of such audits to be split evenly between the Company and Qorvo (unless an audit shows a violation of the Injunctive Order, in which case the Company will bear the full cost of such audit). The audit rights terminate after two years if no violations are found in the first two years; and |
| ● | the Company is permanently enjoined from making, using or selling in the United States, or importing into the United States, certain Company products found by the jury to infringe the two asserted Qorvo patents, or any products not more than colorably different than such products. |
On October 15, 2024, the District Court denied Qorvo’s post-trial motion seeking to amend the jury’s finding that the Company did not violate the North Carolina Unfair and Deceptive Trade Practices Act (the “UDTPA”) and instead award Qorvo treble damages for the Company’s alleged UDTPA violation (the “UDTPA Order,” and together with the Attorneys’ Fees Order, Judgment Interest Order, and Injunction Order, the “Orders”).
14
On October 31, 2024, the District Court denied the Company Post-Trial Motions (the “Post-Trial Motions Denial”).
A litigation related contingent liability of $
Akoustis Technologies, Inc. vs. Qorvo, Inc., TX Case 2:23-cv-00180-JRG-RSP
On April 20, 2023, the Company filed a complaint against Qorvo in the United States District Court for the Eastern District of Texas alleging infringement by Qorvo of U.S. Patent No. 7,250,360 (“the ’360 Patent”), a patent licensed exclusively to the Company by Cornell University. The complaint alleges Qorvo’s willful infringement of the Cornell patent and seeks remedies including enhanced damages and attorneys’ fees. On July 24, 2023, Qorvo filed a motion to dismiss the complaint.
On August 11, 2023, Qorvo filed a motion to strike Akoustis’ infringement contentions. On January 10, 2024, the Court denied Qorvo’s motion to strike and Qorvo agreed to respond to the Company’s interrogatories and document requests relating to the accused products listed in the Company’s infringement contentions.
In connection with the litigation, the Company issued subpoenas to certain suppliers of Qorvo. On March 1, 2024, a supplier of Qorvo filed an inter partes review with the Patent Trial and Appeal Board challenging the validity of the ’360 Patent and, on April 17, 2024, Qorvo made a similar filing.
On May 1, 2024, the Company filed a motion for leave to amend its complaint to add Cornell University as a co-plaintiff, as well as a motion to compel financial discovery.
On September 13, 2024, the U.S. Patent Office instituted the inter partes review previously requested by Qorvo and its supplier. On September 24, 2024, the Company and Qorvo filed a joint motion to stay the litigation pending such inter partes review, which motion was granted by the court.
Resolution of each of the matters described above has been prolonged and costly, and the ultimate result or judgment is uncertain due to the inherent uncertainty in litigation and other proceedings. The adverse result in the Delaware matter described above has had a material adverse effect on the Company and its business and created an urgent need for additional liquidity resulting in the Company’s likely seeking protection by filing a voluntary petition for relief under the Bankruptcy Code. The matters described above and other possible future actions have resulted in significant expenses, diversion of management and technical personnel attention and disruptions and delays in the Company’s business and product development, and other collateral consequences. Any out-of-court settlement of the above matters or other actions may also have an adverse effect on the Company’s business, financial condition and results of operations, including, but not limited to, substantial expenses, the payment of royalties, licensing or other fees payable to third parties, or restrictions on its ability to develop, manufacture, and sell its products.
From time to time, the Company may become involved in other lawsuits, investigations, and claims that arise in the ordinary course of business. The Company believes it has meritorious defenses against such other pending claims and intends to vigorously pursue them. While it is not possible to predict or determine the outcomes of any such other pending actions, the Company believes the amount of liability, if any, with respect to such other pending actions, would not materially affect its financial position, results of operations, or cash flows.
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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
$
Note 14. Segment Information
Operating segments are defined as components of
an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or
decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision
maker is its Chief Executive Officer. The Company operates in
| Fabrication Services | RF Filters | Total | ||||||||||
| Three months ended September 30, 2024 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ||||||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | ( | ) | |||||
| Three months ended September 30, 2023 | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Income (Loss) from Operations | $ | ( | ) | ( | ) | ( | ) | |||||
| As of September 30, 2024 | ||||||||||||
| Accounts receivable, net | $ | $ | $ | |||||||||
| Property and equipment, net | ||||||||||||
| As of June 30, 2024 | ||||||||||||
| Accounts receivable, net | $ | $ | $ | |||||||||
| Property and equipment, net | ||||||||||||
Note 15. 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, 2024 and September 30, 2023 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 June 30, 2024 balance of
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| September 30, 2024 | September 30, 2023 | |||||||
| Convertible Notes | ||||||||
| Options | ||||||||
| Total | ||||||||
Note 16. Fair Value Measurement
Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1: Observable prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
| Fair value at September 30, 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liabilities | | |||||||||||||||
| Total fair value | $ | $ | $ | $ | ||||||||||||
| Fair value at June 30, 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liabilities | | |||||||||||||||
| Total fair value | $ | $ | $ | $ | ||||||||||||
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There were no transfers between Level 1, 2, or 3 valuation classifications during the three months ended September 30, 2024.
| Fair Value of Embedded Derivatives | September 30, 2024 | |||
| Beginning balance | $ | | ||
| Change in fair value of convertible note derivatives | ||||
| Ending balance | $ | |||
The fair value of the embedded derivatives in our convertible notes that were classified as Level 3 in the table above were estimated using a with and without approach on a lattice model framework with significant inputs that are not observable in the market and thus represent a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability and timing assessments of expected future change of control events, the volatility of our share price and the discount rate used to present value future cash payments under the convertible debt obligation. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer.
| September 30, 2024 | June 30, 2024 | |||||||
| Stock Price | $ | | $ | |||||
| Volatility of stock price | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Debt yield | % | % | ||||||
| Remaining term (years) | ||||||||
Note 17. Subsequent Events
The Company performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements.
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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 subsidiaries.
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,” “will,” “might,” “would,” “should,” “could,” “project,” “estimate,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “seek,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may 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), (iii), (iv) or (v) above.
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, if we do not arrange financing in the near term or timely appeal recent judgments and awards issued by the Delaware District Court, we will be forced to seek protection by filing a voluntary petition for relief under the bankruptcy code; our limited operating history; our inability to generate revenues or achieve profitability; the impact of conflicts in Ukraine and the Middle East, global pandemics such as COVID-19 and other sources of volatility on our operations, financial condition and the worldwide economy, including our ability to access the capital markets; increases in prices for raw materials, labor, and fuel caused by rising inflation; our inability to obtain adequate financing and sustain our status as a going concern; 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; existing or increased competition; 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; contracting with customers and other parties with greater bargaining power and agreeing to terms and conditions that may adversely affect our business; the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ operations will be greater than expected and the possibility of disruptions to our business during integration efforts and strain on management time and resources; risks related to doing business in foreign countries, including rising tensions between the United States and China; any cybersecurity breaches or other disruptions compromising our proprietary information and exposing us to liability; our limited number of patents; failure to obtain, maintain, and enforce our intellectual property rights; claims of infringement, misappropriation or misuse of third party intellectual property, including the lawsuit filed by Qorvo, Inc. in October 2021, that, regardless of merit, has resulted in significant expense and a large jury award and related awards in respect of attorney’s fees and pre- and post-judgment interest in favor of Qorvo; the impact of recent departures of executive officers and directors and our inability to attract and retain qualified personnel; the results of any arbitration or litigation that may arise; our reliance on third parties to complete certain processes in connection with the manufacture of our products; product quality and defects; our inability to successfully manufacture, market and sell products based on our technologies; our ability to market and sell our products; our failure to innovate or adapt to new or emerging technologies, including in relation to our competitors; our failure to comply with regulatory requirements; stock volatility and illiquidity; our failure to implement our business plans or strategies; our failure to maintain effective internal control over financial reporting; our failure to obtain or maintain a Trusted Foundry accreditation or our New York fabrication facility; and shortages in supplies needed to manufacture our products, or needed by our customers to manufacture devices incorporating our products.
These and other risks and uncertainties, which are described in more detail in Part II, Item 1A. “Risk Factors” of this report and in our Annual Report on Form 10-K, filed with the SEC on October 8, 2024, as amended October 11, 2024 (the “2024 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.
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Overview
Akoustis Technologies, Inc., a Delaware corporation, was incorporated in 2013. The Company is focused on developing, designing, and manufacturing innovative RF filter solutions for the wireless industry, including for products such as smartphones and tablets, network infrastructure equipment, Wi-Fi 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 XBAW® filters incorporate optimized high purity piezoelectric materials for high power, high frequency and wide bandwidth operation. We are developing RF Filters for 5G, Wi-Fi and defense bands using our proprietary resonator device models and product design kits (PDKs). As we qualify our RF filter products, we are engaging with target customers to evaluate our filter solutions.
Our initial designs have targeted UHB, sub 7 GHz 5G, Wi-Fi and defense bands. 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 5G, and Wi-Fi. We have prototyped, sampled and begun commercial shipment of our single-band low loss BAW filter designs for 5G frequency bands and 5 GHz and 6 GHz Wi-Fi bands which are suited to competitive BAW solutions and historically cannot be addressed with low-band, lower power handling surface acoustic wave (“SAW”) technology. Additionally, through our wholly owned subsidiary, RFMi, of which we acquired majority ownership in October 2021 and full ownership in April 2023, we operate a fabless business whereby we make sales of complementary SAW resonators, RF filters, crystal (“Xtal”) resonators and oscillators, and ceramic products—addressing opportunities in multiple end markets, such as automotive and industrial applications. We also offer back end semiconductor supply chain services through our wholly owned subsidiary, GDSI, which we acquired in January 2023.
We own and/or have filed applications for patents on the core resonator device technology, manufacturing facility and intellectual property (“IP”) necessary to produce our RF filter chips and operate as a “pure-play” RF filter supplier, providing discrete filter solutions direct to Original Equipment Manufacturers (“OEMs”) and aligning with the front- end module manufacturers that seek to acquire high performance filters to expand their module businesses. We believe this business model is the most direct and efficient means of delivering our solutions to the market.
Technology. Our device technology is based upon bulk-mode acoustic resonance, which we believe is superior to surface-mode resonance for high-band and ultra-high- band (“UHB”) applications that include 4G/LTE, 5G, Wi-Fi, and defense applications. Although some of our target customers utilize or manufacture the RFFE module, they may lack access to critical UHB filter technology that we produce, which is necessary to compete in high frequency applications.
Manufacturing. We currently manufacture Akoustis’ high-performance RF filter circuits, using our first generation XBAW® wafer process, in our 125,000-square foot wafer-manufacturing facility located in Canandaigua, New York (the “NY Facility”), which we acquired in June 2017. Our SAW-based RF filter products are manufactured by a third party and sold either directly or through a sales distributor.
Intellectual Property. As of October 31, 2024, our IP portfolio included 97 patents, including a blocking patent that we have licensed from Cornell University. Additionally, as of October 31, 2024, we have 31 pending patent applications. These patents cover our XBAW® RF filter technology from raw materials through the system architectures. Given the significance of the Company’s intellectual property to its business, the Company enforces its intellectual property rights and protects its patent portfolio, which may include filing lawsuits against companies that the Company believes are infringing upon its patents. The Company considers protecting its intellectual property rights to be central to its business model and competitive position in the RF filter industry.
By designing, manufacturing, and marketing our RF filter products to mobile phone OEMs, defense OEMs, network infrastructure OEMs, and Wi-Fi CPE OEMs, we seek to enable broader competition among the front-end module manufacturers.
Since we own and/or have filed applications for patents on the core technology and control access to our 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 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. To succeed across our combined portfolio of Akoustis, XBAW, and RFMi products, we must convince customers in a wide range of industries including mobile phone OEMs, RFFE module manufacturers, network infrastructure OEMs, WiFi CPE OEMs, medical device makers, and defense customers to use our products in their systems and modules. For example, 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 company for XBAW filters.
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To help drive our XBAW filter business, we plan to continue 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 XBAW technology, intellectual property, designs, and related improvements. Across our combined portfolio of Akoustis, XBAW, and RFMi products, we expect to continue development of catalog designs for multiple customers and to offer such catalog products in multiple sales channels.
Business Environment and Current Trends
Impact of New Export Control Regulations
On October 17, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) announced updates to export control regulations, originally issued on October 7, 2022, regarding the sale of certain products and services related to advanced computing items, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of advanced-node integrated circuits and semiconductor manufacturing equipment, among others. The updated rules modify and expand restrictions on the sale of products and the provision of certain services by U.S. persons to some companies and domestic fabs located in certain countries, including China, without prior U.S. governmental authorization.
Semiconductor Shortages and Supply Chain Issues
The global silicon semiconductor industry is experiencing a shortage in supply and difficulties in ability to meet customer demand. This shortage has led to an increase in lead-times of production of semiconductor chips and components. As our business depends in significant part upon manufacturers of products requiring semiconductors, as well as the current and anticipated production of these products, we have sought to manage the impact of supply shortages though carefully maintaining and increasing key inventory levels. In some cases, we have incurred higher costs to secure available inventory, or have extended our purchase commitments or placed non-cancellable orders with suppliers, which introduces inventory risk if our forecasts and assumptions are inaccurate. We believe the global supply chain challenges and their adverse impact on our business and financial results will persist through calendar year 2024. We expect these constrained supply conditions to increase our costs of goods sold and increase uncertainty with respect to the timing of delivery of specific customer orders.
Recent Developments
On August 13, 2024, we announced an additional purchase order for $13 million XBAW® filters from our existing Tier-1 customer for use in their Wi-Fi Access Points raising production commitments to greater than $21 million, plus a customer option to increase order quantities.
On September 9, 2024, the District Court issued an Order Granting in Part and Denying in Part Plaintiff’s Motion for Attorneys’ Fees (the “Attorneys’ Fees Order”). The Attorneys’ Fees Order awarded Qorvo approximately $11.7 million in attorneys’ fees (the “Attorneys’ Fees Award”).
On September 10, 2024, the District Court issued an Order on Pre- and Post-Judgment Interest (the “Judgment Interest Order”. The Judgment Interest Order awarded Qorvo approximately $7.3 million (the “Judgment Interest Award” and, collectively with the Damages Award and the Attorneys’ Fees Award, the “Awards”).
On October 11, 2024, the District Court issued an order granting in part and denying in part Qorvo’s motion for permanent injunctive relief, and immediately after entered its Permanent Injunction (the “Injunction Order”). The Injunction Order provides that:
| ● | the Company is permanently enjoined from possessing any confidential information copied or derived from certain trade secrets that the jury found the Company to have misappropriated (“Qorvo Trade Secret Information”), selling or distributing any product made using Qorvo Trade Secret Information, and promoting or otherwise providing services that use Qorvo Trade Secret Information; |
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| ● | the Company is required to engage, at its expense, an e-discovery vendor to assist with the identification, collection and removal of any Qorvo confidential information and Qorvo Trade Secret Information from any of the Company’s databases, document management systems, email accounts, computers and other storage media, and paper files; |
| ● | for a period of four years from the issuance of the Order, Qorvo will have the right to conduct audits of the Company through an independent third party, a maximum of once per calendar year, with the expense of such audits to be split evenly between the Company and Qorvo (unless an audit shows a violation of the Injunctive Order, in which case the Company will bear the full cost of such audit). The audit rights terminate after two years if no violations are found in the first two years; and |
| ● | the Company is permanently enjoined from making, using or selling in the United States, or importing into the United States, certain Company products found by the jury to infringe the two asserted Qorvo patents, or any products not more than colorably different than such products. |
On October 15, 2024, the District Court denied Qorvo’s post-trial motion seeking to amend the jury’s finding that the Company did not violate the North Carolina Unfair and Deceptive Trade Practices Act (the “UDTPA”) and instead award Qorvo treble damages for the Company’s alleged UDTPA violation.
On October 31, 2024, the District Court denied the Company’s post-trial motions seeking to (i) overturn the jury’s damages award for trade secret misappropriation and (ii) obtain a new trial on liability for patent infringement and regarding damages for trade secret misappropriation (or in the alternative, remittitur regarding such damages).
Critical Accounting Estimates
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 2024 Annual Report.
Results of Operations
Three Months Ended September 30, 2024 and 2023
Revenue
The Company recorded revenue of $9.0 million for the three months ended September 30, 2024 as compared to $7.0 million for the three months ended September 30, 2023. The increase of $2.0 million was primarily due to an increase in fabrication service revenue by $2.4 million or 55.9% offset by a decrease in service revenue of $0.4 million or 15.1%.
Cost of Revenue
Cost of revenue includes direct labor, material, net realizable value (NRV) adjustments, and facility costs primarily associated with manufacturing of filter products and engineering services. The Company recorded cost of revenue of $4.7 million for the three months ended September 30, 2024 as compared to $8.1 million for the three months ended September 30, 2023. The $3.4 million decrease is primarily due to costs associated with RF product revenue which decreased by $3.3 million as well as costs associated with fabrication services revenue which decreased by $0.1 million.
Research and Development Expenses
R&D expenses were $2.7 million for the three months ended September 30, 2024, as compared to $10.3 million for the three months ended September 30, 2023, a decrease of $7.6 million or 74.0%. Personnel costs, including stock-based compensation, were $0.8 million compared to $4.8 million in the prior year period, a decrease of $4.0 million or 82.9%. Facility costs, including depreciation, of $1.7 million primarily associated with the NY Facility were $1.2 million lower than the prior period. Lastly, R&D material costs were $2.1 million lower than the prior period.
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 September 30, 2024 were $6.9 million, which is a decrease of $3.3 million compared to the $10.2 million for the three months ended September 30, 2023. Year-over-year changes within G&A expenses include a decrease in employee compensation (including stock-based compensation) of $3.0 million and a decrease in legal fees of $1.1 million offset by an increase in other professional services of $1.2 million.
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Other (Expense)/Income
Other expense for the three months ended September 30, 2024 was $1.1 million, compared to other income of $1.5 million for the three months ended September 30, 2023. The expense increase of $2.6 million was comprised of a reduction in the gain related to the change in fair value of derivative liabilities of $2.0 million and an increase in interest expense of $0.2 million and an increase in litigation related contingent liability of $0.4 million.
Net Loss
The Company recorded a net loss of $6.4 million for the three months ended September 30, 2024, compared to a net loss of $20.1 million for the three months ended September 30, 2023. The period-over-period reduction in loss of $13.7 million, or 68.1%, was primarily driven by an increase in sales of $2.0 million, a decrease in cost of revenue of $3.4 million, a decrease in G&A expenses of $3.3 million and a decrease in R&D expenses of $7.6 million. These expense decreases were partially offset by a decrease in other income of $2.6 million.
Liquidity and Capital Resources
Overview
We are experiencing financial and operating challenges. In the absence of additional financing or our timely appeal of the recent judgment and awards relating to the Qorvo Litigation, we will be forced to seek protection by filing a voluntary petition for relief under the Bankruptcy Code.
The Company has incurred losses and negative cash flow from operations since inception. Our operations thus far have been funded primarily with sales of equity and debt securities, as well as contract research and government grants, revenue from customers, foundry services and engineering services. In November 2023, we announced that we had undertaken significant expense reductions and cost-saving measures to reduce our operating cash flow burn. As a result of these cost-savings initiatives, the operating expenditures supporting the future growth of our manufacturing capabilities and expansion of our product offerings have decreased, along with decreases in research and development and headcount costs.
The Company’s short-term and long-term liquidity requirements primarily arise from funding (i) research and development expenses, (ii) general and administrative (“G&A”) expenses including salaries, bonuses, commissions and stock-based compensation, (iii) working capital requirements, (iv) business acquisitions and investments we may make from time to time and a note payable issued in connection with our acquisition of GDSI, and (v) interest and principal payments related to our $44.0 million aggregate principal amount of outstanding convertible notes. Additionally, due to the outcome of the Qorvo Litigation and the judgments against the Company for damages and legal fees, the Company’s liquidity is severely constrained. These matters raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing
Balance Sheet and Working Capital
The Company had $12.1 million of cash and cash equivalents on hand as of September 30, 2024, which reflects a decrease of $12.3 million compared to $24.4 million as of June 30, 2024. The decrease is primarily due to cash used in operations of $8.1 million, cash used for investing activities of $0.2 million, and cash used for financing activities of $4.1 million. In the absence of additional liquidity, the Company anticipates that its existing cash resources, with a continued focus on cash conservation, is sufficient to fund its operations into the third quarter of fiscal 2025. However, the Company has historically incurred recurring operating losses and will continue to do so until it generates sufficient revenues from operations; as a result, we need to obtain additional capital through the sale of additional equity securities, debt, or otherwise, to fund operations past that date. There is no assurance that the Company’s projections and estimates are accurate. The Company is actively managing and controlling the Company’s cash outflows to mitigate liquidity risks, however these efforts may not be successful.
September 30, 2024 compared to June 30, 2024
As of September 30, 2024, the Company had current assets of $25.7 million, made up primarily of cash on hand of $12.1 million. As of June 30, 2024, current assets were $36.8 million comprised primarily of cash on hand of $24.4 million.
Property, Plant and Equipment was $12.4 million as of September 30, 2024 as compared to a balance of $12.9 million as of June 30, 2024.
Total assets as of September 30, 2024 and June 30, 2024 were $57.4 million and $69.7 million, respectively.
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Current liabilities as of September 30, 2024 and June 30, 2024 were $80.1 million and $84.4 million, respectively.
Long-term liabilities totaled $42.5 million as of September 30, 2024, compared to $42.5 million as of June 30, 2024.
Stockholders’ equity was a deficit of $65.2 million as of September 30, 2024, compared to a deficit of $57.1 million as of June 30, 2024, an increase in the deficit of $8.1 million, or 14.2%. This increase in deficit was primarily due to the net loss for the three months ended September 30, 2024 of $6.4 million along with a decrease in additional paid-in-capital (“APIC”) of $1.7 million. The decrease in APIC was primarily due to stock-based compensation.
Cash Flow Analysis
Operating activities used cash of $12.2 million during the three months ended September 30, 2024 and $13.1 million during the comparative period ended September 30, 2023.
Investing activities used cash of $0.2 million for the three months ended September 30, 2024 compared to $4.2 million for the comparative period ended September 30, 2023. Investing activities for the three months ended September 30, 2023 consisted of purchases of property, plant and equipment.
There were no financing activities during the three months ended September 30, 2024 or September 30, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
We conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of such date due to the material weaknesses described below with respect to our internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed in our 2024 Annual Report, and based on our evaluation as of September 30, 2024, we identified the following material weaknesses in the Company’s internal controls:
| - | A material weakness in the design and implementation of access security and program change management controls for certain financially relevant systems that ensure appropriate access to data and adequate system changes. |
| - | A material weakness in the design of a control as relates to the precision of the control with respect to accrual of invoices in the appropriate accounting period. |
Remediation Plan
IT Access and Change Controls: During the first quarter of fiscal year 2025, controls were designed and implemented to enhance control over financial system access as well as enhanced system change management controls. These controls will be tested for design and operating effectiveness during fiscal year 2025.
Invoice Accrual Review: During the first quarter of fiscal year 2025, controls were designed and implemented to mitigate risks related to the precision of the control with respect to the accrual of invoices in the appropriate accounting period. These controls will be tested for design and operating effectiveness during fiscal year 2025.
Changes in Internal Control over Financial Reporting
Other than the mitigating controls referenced above, during the quarter ended September 30, 2024, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial condition or results of operations and prospects.
Except for the matters described under “Litigation, Claims and Assessments” in “Note 13. – Commitments and Contingencies” of the condensed consolidated financial statements in this Item 1 of Part I of this Quarterly Report on Form 10-Q, which description is incorporated in “Item 1. Legal Proceedings” by reference, we are currently not aware of any material pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.
ITEM 1A. RISK FACTORS.
In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Except as disclosed below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our 2024 Annual Report.
We have a history of operating losses and will need to raise significant additional capital to continue our business and operations. Additionally, the Qorvo Litigation resulted in a verdict against the Company, awarding Qorvo approximately $38.6 million in damages, and the District Court has since awarded Qorvo approximately $11.7 million in attorneys’ fees and approximately $7.3 million in pre- and post-judgment interest, which has severely constrained our liquidity. Unless we arrange financing in the near term, or timely appeal the verdict and fee awards, we will be forced to seek protection by filing a voluntary petition for relief under the Bankruptcy Code, which would have a material adverse effect on our business and could cause you to lose all of your investment.
We are experiencing financial and operating challenges. As of September 30, 2024, we had $12.1 million of cash and cash equivalents compared to $79.7 million of current liabilities, resulting in negative working capital. Current liabilities include a litigation related contingent liability in respect of an adverse judgment against the Company in the Qorvo Litigation awarding Qorvo approximately $38.6 million in damages and subsequently issued orders awarding Qorvo approximately $11.7 million in attorneys’ fees and approximately $7.4 million in pre- and post-judgment interest. On October 31, 2024, the District Court denied the Company Post-Trial Motions. The verdict in the Qorvo Litigation together with the related awards and the denial of the Company Post-Trial Motions have created significant uncertainty regarding the Company’s financial condition and prospects. The Company is continuing to evaluate the impact of the verdict and the related awards on its business, results of operations, and financial condition; however, unless the Company arranges financing or timely appeals the District Court’s judgment and awards, which may require the Company’s posting an undertaking (such as an appeal bond), the Company will be required to seek protection under applicable bankruptcy laws, resulting in our stockholders losing some or all of their investment.
We have been subject to claims of infringement, misappropriation or misuse of third party intellectual property that have resulted in significant expense and severe disruption to our business, and we may become subject to similar claims in the future.
The semiconductor industry is characterized by the vigorous pursuit and protection of intellectual property rights. We have not undertaken a comprehensive review of the rights of third parties in our field. From time to time, we may be named in lawsuits or receive notices or inquiries from third parties regarding our products or the manner in which we conduct our business suggesting that we may be infringing, misappropriating or otherwise misusing patent, copyright, trademark, trade secret and other intellectual property rights. Any claims that our technology infringes, misappropriates or otherwise misuses the rights of third parties, regardless of their merit or resolution, could be expensive to litigate or settle and could divert the efforts and attention of our management and technical personnel, cause significant delays and materially disrupt the conduct of our business. We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required to:
| ◾ | pay substantial damages, including treble damages if we were held to have willfully infringed; |
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| ◾ | cease the manufacture, offering for sale or sale of the infringing technology or processes; |
| ◾ | expend significant resources to develop non-infringing technology or processes; |
| ◾ | obtain a license from a third party, which may not be available on commercially reasonable terms, or may not be available at all; or |
| ◾ | lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others. |
As described under “Litigation, Claims and Assessments” in “Note 13 – Commitments and Contingencies” of the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, the Qorvo Litigation has resulted in a verdict against the Company awarding Qorvo a substantial amount of damages and the District Court has subsequently awarded Qorvo attorneys’ fees and pre- and post-judgment interest, which has several constrained our liquidity and will likely cause us to file for protection under the Bankruptcy Code. The District Court has also granted a permanent injunction, which places certain restrictions on the Company’s ability to sell products found by the jury to infringe the two asserted Qorvo patents and also grants certain inspection and audit rights to Qorvo to ensure compliance with the injunction. The District Court also denied the Company’s post-trial motions seeking to (i) overturn the jury’s damages award for trade secret misappropriation and (ii) obtain a new trial on liability for patent infringement and regarding damages for trade secret misappropriation (or in the alternative, remittitur regarding such damages). Additionally, as described under Note 14, the Company has filed a complaint against Qorvo in the U.S. District Court for the Eastern District of Texas alleging infringement by Qorvo of certain Company patents.
The litigation described above has been prolonged and costly and resulted in significant expenses, diversion of management and technical personnel attention and disruptions and delays in the Company’s business and product development, and other collateral consequences, all of which has had a material adverse effect on its business, financial condition, and results of operations. Any out-of-court settlement of the above matters or other actions may also have an adverse effect on the Company’s business, financial condition and results of operations, including, but not limited to, substantial expenses, the payment of royalties, licensing or other fees payable to third parties, or restrictions on its ability to develop, manufacture, and sell its products.
From time to time, the Company may become involved in other lawsuits, investigations, and claims that arise in the ordinary course of business. The Company believes it has meritorious defenses against such other pending claims and intends to vigorously pursue them. While it is not possible to predict or determine the outcomes of any such other pending actions, the Company believes the amount of liability, if any, with respect to such other pending actions, would not materially affect its financial position, results of operations, or cash flows.
In addition, our agreements with prospective customers and manufacturing partners may require us to indemnify such customers and manufacturing partners for third party intellectual property infringement claims. Pursuant to such agreements, we may be required to defend such customers and manufacturing partners against certain claims that could cause us to incur additional costs. While we endeavor to include as part of such indemnification obligations a provision permitting us to assume the defense of any indemnification claim, not all of our current agreements contain such a provision and we cannot provide any assurance that our future agreements will contain such a provision, which could result in increased exposure to us in the case of an indemnification claim.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
The Company did not sell any unregistered securities during the period covered by this report.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS.
The exhibits in the Exhibit Index below are filed or furnished, as applicable, as part of this report.
EXHIBIT INDEX
| * | Filed herewith |
| ** | Furnished herewith |
| † | Management contract or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: November 14, 2024 | Akoustis Technologies, Inc. | |
| By: | /s/ Kenneth E. Boller | |
| Kenneth E. Boller | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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