Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Risk Factors - AKTS
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The Xtal market is more mature and there are many players, including Epson, KDS Daishinku, Kyocera, Murata and NDK from Japan and TXC from Taiwan. Our RFMi products are largely focused on niche markets such as Industrial IoT and professional audio, which may reduce competition with these large, high volume competitors. In addition, our RFMi products primarily consist of TCXO, VCTCXO and VCXO, instead of low cost Xtal. However, we may still compete with market participants with more resources and purchasing power than us.
Employees
We place an emphasis on hiring the best talent at the right time to enable our core technology and business growth. This includes establishing a competitive compensation and benefits package, thereby enhancing our ability to recruit experienced personnel and key technologists. As of June 30, 2024, we had a total of 117 full-time employees. We will continue to hire specific and targeted positions to further enable our technology and manufacturing capabilities as and when appropriate and as resources permit.
Government Regulations
Our business and products in development are or may become subject to regulation by various federal and state governmental agencies, including the radio frequency emission regulatory activities of the Federal Communications Commission (the “FCC”), the consumer protection laws of the Federal Trade Commission (the “FTC”), the import/export regulatory activities of the Department of Commerce, international traffic in arms regulations (ITAR) administered by the Department of State, the product safety regulatory activities of the Consumer Products Safety Commission, and the environmental regulatory activities of the Environmental Protection Agency (the “EPA”).
The rules and regulations of the FCC limit the RF used by, and level of power emitting from, electronic equipment. Our RF filters, as a key element enabling consumer electronic smartphone equipment, are required to comply with these FCC rules and may require certification, verification or registration of our RF filters with the FCC. Certification and verification of new equipment requires testing to ensure the equipment’s compliance with the FCC’s rules. The equipment must be labeled according to the FCC’s rules to show compliance with these rules. Testing, processing of the FCC’s equipment certificate or FCC registration and labeling may increase development and production costs and could delay the implementation of our XBAW acoustic wave resonator technology for our RF filters and the launch and commercial productions of our filters into the U.S. market. Electronic equipment permitted or authorized to be used by us through FCC certification or verification procedures must not cause harmful interference to licensed FCC users, and may be subject to RF interference from licensed FCC users. Selling, leasing or importing non-compliant equipment is considered a violation of FCC rules and federal law, and violators may be subject to an enforcement action by the FCC. Any failure to comply with the applicable rules and regulations of the FCC could have an adverse effect on our business, operating results and financial condition by increasing our compliance costs and/or limiting our sales in the United States.
Like our XBAW products, RFMi’s SAW and Xtal products are frequency components and are subject to similar FCC rules. For instance, many of RFMi’s customers operate in ISM (Industrial, Scientific, and Medical) band, MICS (Medical Implant Communication System), WMTS (Wireless Medical Telemetry Service) and other bands regulated by FCC, in which transmission power level is restricted and products have to pass the FCC, and in certain cases FDA certification to be allowed in the market. Even though RFMi’s components do not need to be certified by FCC and/or FDA, our customers modules and systems which incorporate RFMi components may need to be certified. Any failure of RFMi’s customers to be certified would affect RFMi’s sales.
The semiconductor and electronics industries also have been subject to increasing environmental regulations. A number of domestic and foreign jurisdictions seek to restrict the use of various substances, a number of which have been used in our products in development or processes. While we have implemented a compliance program to ensure our product offering meets these regulations, there may be instances where alternative substances will not be available or commercially feasible, or may only be available from a single source, or may be significantly more expensive than their restricted counterparts. Additionally, if we were found to be non-compliant with any such rule or regulation, we could be subject to fines, penalties and/or restrictions imposed by government agencies that could adversely affect our operating results. We will continue to monitor our quality program and expand as required to maintain compliance and ability to audit our supply chain.
Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. An adverse outcome in any such litigation could require us to pay contractual damages, compensatory damages, punitive damages, attorneys’ fees and costs. These enforcement actions could harm our business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.
Recent Legislation
In August 2022, the Creating Helpful Incentives to Produce Semiconductors and Science Act (the “CHIPS Act”) was signed into law. The CHIPS Act provides for a 25% refundable tax credit on certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property which is placed in service after December 31, 2022. The CHIPS Act also provides for certain other financial incentives to further investments in domestic semiconductor manufacturing. The Company recorded an investment tax credit of $3.2 million during the fiscal year ended June 30, 2024.
ITEM 1A. RISK FACTORS
This section is a summary of the risks that we presently believe are material to the operations of the Company. Additional risks of which we are not presently aware or which we presently deem immaterial may also impair the Company’s business, financial condition or results of operations.
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Risk Factors Summary
Risks Related to our Financial Condition
Risks Related to our Business and the Industry in which we Operate
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Risks Related to Our Intellectual Property
Risks Related to Regulatory Requirements
Investment Risks
General Risk Factors
Risks Related to our Financial Condition
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. If we are unable to arrange financing in the near term, or to 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 June 30, 2024, we had $24.4 million of cash and cash equivalents compared to $84.4 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 $7.3 million in pre- and post-judgment interest. The verdict in the Qorvo Litigation together with the related awards 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, depending on both (i) the outcome of the Company’s post-trial motions and the District Court’s final judgment and (ii) the Company’s ability to arrange any financing or to timely appeal 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.
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Factors that could limit our ability to raise additional capital include, among other matters:
Any inability to raise adequate funds on commercially reasonable terms and in the near term or to timely appeal the District Court’s judgment and awards would force us to seek protection by filing a voluntary petition for relief under the Bankruptcy Code, resulting in our stockholders losing some or all of their investment.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.