What changed in this filing

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Item 1. Financial Statements

2020-08-13 compared with 2020-05-27 · 1419 added, 1109 removed, 605 unchanged (81% of the section changed)

3 unchanged sentences

(in thousands, except share and per share

March 31, 2020

June 30, 2020

December 31, 2019

6 unchanged sentences

Intangible assets, net

Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)

Liabilities, Convertible Preferred Stock and Stockholders' Equity

Current Liabilities:

1 unchanged sentence

Accrued liabilities

Borrowings, current portion

Total current liabilities

3 unchanged sentences

Commitments and contingencies (Note 8)

Series A 8% Senior Convertible Preferred stock, par value $0.0001;

Series A 8% Senior

Convertible Preferred stock, par value $0.0001;

1,250,000 shares authorized;

250,000 shares issued and outstanding

as of March 31, 2020 and December 31, 2019,

(liquidation preference of $1,076,000 and $1,056,000)

Stockholders' Equity (Deficit):

250,000 shares issued and outstanding as of

June 30, 2020 and December 31, 2019, (liquidation preference of $1,096,000 and $1,056,000)

Stockholders' Equity:

Common stock, par value $0.0001;

200,000,000 shares authorized;

1,338,603 and 1,245,238 shares issued and outstanding as of

March 31, 2020 and December 31, 2019, respectively

7,723,353 and 1,245,238 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Total stockholders' equity (deficit)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

Total stockholders' equity

Total liabilities, convertible preferred stock and stockholders' equity

The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated balance sheet as of that date.

5 unchanged sentences

Consolidated Statements of Operations

For the three months ended March 31, 2020

For the three and six months ended June 30,

2020 and 2019

(in thousands, except share and per share

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

7 unchanged sentences

Change in fair value of warrant liability

Other income (expense), net

Change in fair value of derivative liability

Other expense, net

Loss before provision for income taxes

1 unchanged sentence

Convertible preferred stock dividend

Deemed dividend from warrant repricing

Net loss attributable to common stockholders

Net loss per common share - basic and diluted

Weighted average number of common shares used in

computing net loss per common share

Weighted average number of

common shares used in computing net loss per common share

Share amounts have been retroactively adjusted to reflect

the impact of a 1-for-20 reverse stock split effected in April 2020, as discussed in Note 2.

The accompanying notes are an integral part

of these condensed consolidated financial statements.

accompanying notes are an integral part of these condensed consolidated financial statements.

Wireless Technologies, Inc.

Consolidated Statements of Comprehensive Loss

For the three months ended March 31, 2020

For the three and six months ended June 30,

2020 and 2019

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive loss, net of tax:

5 unchanged sentences

Consolidated Statements of Convertible Preferred Stock and Stockholders’

Equity (Deficit)

For the three months ended March 31, 2020

(in thousands, except share and per share

Convertible Preferred Stock

Common Shares

For the three and six months ended June 30,

2020 and 2019

(in thousands, except share data)

Preferred Stock

Comprehensive

Stockholders'

Paid-in Capital

Equity (Deficit)

Balance as of December 31,

Issuance of common stock and warrants, net of offering costs

Issuance of common stock in connection with notes payable

Issuance of warrants in connection with convertible notes payable

Convertible preferred stock dividend

Issuance of common stock

and warrants, net of offering costs

Issuance of common stock

in connection with notes payable

Issuance of warrants in

connection with convertible notes payable

Convertible preferred stock

Stock-based compensation

Restricted awards cancelled

Release of restricted common stock

Restricted stock awards

Release of restricted common

Balance as of March 31, 2020

Issuance of common stock,

prefunded warrants and warrants, net of public

Proceeds from the exercise

of prefunded warrants and common stock warrants

Issuance of common stock,

net of shelf offering costs

Issuance of common stock

in connection with settlements

Deemed dividend from warrant

down-round provision

Warrant repricing

Convertible preferred stock

Stock-based compensation

Restricted stock awards

Gain on foreign currency

translation from closure of subsidiary

Balance as of June 30,

Preferred Stock

1 unchanged sentence

Stockholders'

Balance as of December 31, 2018

Release of vested restricted

Issuance of warrants for

Currency translation adjustment

Balance as of March

as of December 31, 2018

of vested restricted common stock

of warrants for common stock

translation adjustment

as of March 31, 2019

from issuance of preferred stock and common stock warrants,

of issuance costs

value of derivative liability in connection with issuance of preferred stock

of warrants for common stock in connection with preferred

of preferred stock dividend

from issuance of common stock, net of issuance costs

of common stock for services

translation adjustment

as of June 30 , 2019

Share amounts have been retroactively adjusted to reflect

4 unchanged sentences

Consolidated Statements of Cash Flows

For the three months ended March 31, 2020

For the six months ended June 30,

2020 and 2019

(in thousands, except share and per share

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Amortization of debt discounts

Loss on disposal of property and equipment

Expense related to common stock issued in settlements

Change in fair value of warrant liability

Expense for issuance of warrants and common stock for services

Change in fair value of derivative liability

Expense for the issuance of consultant warrants and common stock

Gain on foreign currency translation from closure of subsidiary

Changes in operating assets and liabilities:

3 unchanged sentences

Accrued liabilities

Accrued interest

Net cash used in operating activities

3 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of common stock and warrants, net of issuance costs

Proceeds from issuance of common stock, prefunded warrants and warrants, net of issuance costs

Proceeds from issuance of common stock, net of shelf offering costs

Proceeds from the issuance of preferred stock and common stock warrants, net of issuance costs

Proceeds from the exercise of prefunded warrants and common stock warrants

Proceeds from issuance of promissory notes

Proceeds from issuance of convertible notes payable, net of issuance costs

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents as of beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

2 unchanged sentences

Issuance of common stock in connection with convertible notes payable

Issuance of warrants in connection with common stock offering

Expenses related to issuance of convertible notes in accounts payable

Issuance of warrants in connection with common stock offerings

of common stock warrants in connection with preferred stock offering

Fair value of derivative liability in connection with issuance of convertible preferred stock

Deemed dividend from warrant repricing

Warrant repricing

Convertible preferred stock dividend

The accompanying notes are an integral part

of these condensed consolidated financial statements.

Issuance costs for public offering of common stock in accounts payable

Issuance costs for shelf offering of common stock in accounts payable

The accompanying notes are an integral

part of these condensed consolidated financial statements.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Business and Viability of Operations

Summit Wireless Technologies,

Summit Wireless Technologies, Inc.

(also referred to herein as “we”, “us”, “our”, or the “Company”) was originally

formed as a limited liability company in Delaware on July 23, 2010.

The Company develops wireless audio semiconductors and modules

for consumer electronics companies to enable mainstream consumers and audio enthusiasts to experience high quality audio.

On January 23, 2020, we entered

into a funding agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated

accredited investor of a convertible promissory note in the principal amount of $111,100, reflecting a 10% original issue discount,

500 shares of our common stock and a five-year warrant exercisable for 7,936 shares of our common stock at an exercise price of

$9.80 per share in consideration for $100,000, which was funded on January 24, 2020.

Additionally, pursuant to the Funding Agreement,

such investor was granted a most favored nation right.

In March 2020, the outstanding debt owed to such investor pursuant to the

Funding Agreement was fully repaid.

On February 28, 2020, the Company

completed a private placement (the “February 2020 Private Placement”) of 91,062 units (the “Units”), each

unit consisting of (i) one (1) share of common stock and (ii) a warrant to purchase 0.50 of a share of common stock (the “February

2020 Warrants”), at a price per Unit of $9.17.

The Units were issued pursuant to a Unit Purchase Agreement, dated February

4, 2020, and a subscription agreement, dated February 28, 2020 by and among the Company and the purchasers signatory thereto.

February 2020 Private Placement, which was priced above market, resulted in gross proceeds of $835,000 before fees and other expenses

associated with the transaction.

The February 2020 Warrants are

exercisable to purchase up to an aggregate of 45,534 shares of common stock commencing on the date of issuance at an exercise price

of $9.80 per share, subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

The February 2020

Warrants are exercisable immediately and will expire on the close of business on February 28, 2025.

On March 30, 2020, the Company

completed a private placement (the “March 2020 Private Placement”) of a senior secured convertible instrument (the

“March 2020 Note”) and a warrant (the “March 2020 Warrant”) to purchase 227,679 shares of common stock

at an exercise price of $6.40 per share, pursuant to which Maxim Group LLC (“Maxim”), acted as placement agent.

March 2020 Note and March 2020 Warrant were issued pursuant to a securities purchase agreement, entered into as of March 22, 2020

(the “March 2020 Purchase Agreement”) by and between the Company and an institutional investor (the “Investor”).

The March 2020 Private Placement resulted in gross proceeds of $1,700,000, before fees and other expenses associated with the transaction,

including but not limited to, an $85,000 commitment fee payable to the Investor.

Additionally, the Company agreed to issue to Maxim

a warrant to purchase up to an aggregate of 20,400 shares of common stock, subject to adjustment, as partial consideration for

serving as placement agent in connection with the March 2020 Private Placement.

On March 31, 2020, the Company

held a special meeting of its stockholders, at which its stockholders approved an amendment to the Company’s certificate

of incorporation, as amended, to effect a reverse stock split of all of the outstanding shares of common stock at a specific ratio

within a range from one-for-four to one-for-twenty, and to grant authorization to the board of directors to determine, in its sole

discretion, the specific ratio and timing of the reverse stock split.

In April 2020, a 1-for-20 reverse stock split was effected

and the condensed consolidated financial statements have been retroactively adjusted.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

The Company develops wireless audio semiconductors and

modules for consumer electronics companies to enable mainstream consumers and audio enthusiasts to experience high quality audio.

Nasdaq Notification

On October 16, 2019, the Company

received a written notification (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that

the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing bid price of the Company’s common stock

was below $1.00 per share for the previous thirty (30) consecutive business days.

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A),

the Company has been granted a 180 calendar day compliance period, or until April 13, 2020, to regain compliance with Nasdaq’s

minimum bid price requirements.

During the compliance period, the Company’s shares of common stock will continue to be listed

and traded on Nasdaq.

To regain compliance, the closing bid of the common stock must meet or exceed $1.00 per share for at least

ten (10) consecutive business days during such 180 calendar day grace period.

If the Company is not in compliance by April 13,

2020, the Company may be afforded a second 180 calendar day grace period.

To qualify, the Company would be required to meet the

continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with

the exception of the minimum bid price requirements.

In addition, the Company would be required to notify Nasdaq of its intent

to cure such minimum bid price deficiency by effecting a reverse stock split, if necessary.

If the Company does not regain compliance

within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that

the Company’s shares of common stock will be subject to delisting.

The Company intends to monitor the closing bid price for

its common stock between now and April 13, 2020, and will consider available options to resolve the Company’s noncompliance

with Nasdaq’s minimum bid price requirement, as may be necessary.

There can be no assurance that the Company will be able

to regain compliance with such minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.

See Note 11, Subsequent Events for more details.

On November 18, 2019, we were

officially notified by Nasdaq that we did not comply with Nasdaq Listing Rule 5550(b), which requires a minimum $2,500,000 stockholders’

On November 18, 2019, we

were officially notified by The Nasdaq Capital Market, Inc.

(“Nasdaq”) that we did not comply with Nasdaq Listing

Rule 5550(b), which requires a minimum $2,500,000 stockholders’

equity (the “Stockholders’

Equity Requirement”), among other continued listing criteria.

We were required to

submit to Nasdaq a plan to regain compliance with the Stockholders’

Equity Requirement for consideration by the Nasdaq Listing

Qualifications staff (“Nasdaq Staff”) by no later than January 2, 2020.

On January 2, 2020, we submitted a plan to

regain compliance (the “Compliance Plan”) to the Nasdaq Staff.

On March 23, 2020, the Nasdaq Staff accepted the Compliance

Plan and granted us an extension period pursuant to which we must regain compliance with the Nasdaq Listing Rule 5550(b).

other things, the terms of such extension include that we must complete an equity raise on or before May 18, 2020, and must publicly

disclose on a Current Report on Form 8-K our prior non-compliance with Nasdaq Listing Rule 5550(b) and the terms of such equity

raise enabling us to regain compliance with such rule.

Notwithstanding the terms of such extension period, if we fail to evidence

compliance with Nasdaq Listing Rule 5550(b) upon the filing of our periodic report for the period ending June 30, 2020, the Nasdaq

Staff will provide written notification that our common stock will be delisted from Nasdaq, however we may appeal such delisting

determination to Nasdaq’s hearing panel.

On March 24, 2020, we were officially

notified by Nasdaq that we did not comply with Listing Rule 5605 (the “Audit Committee Rule”), which requires that

the audit committee of our board of directors include at least three independent directors.

In accordance with Nasdaq’s Listing

Rules, we have been granted a cure period in order to regain compliance with the Audit Committee Rule, which period ends on (i)

the earlier of (x) our next annual stockholders’

meeting or (y) February 10, 2021 or (ii) if such annual stockholders’

meeting is held before August 10, 2020, then we must evidence compliance with the Audit Committee Rule no later than that date.

If we fail to evidence compliance with the Audit Committee Rule upon such period’s end, the Nasdaq Staff will provide written

notification that our common stock will be delisted from Nasdaq;

however, we may appeal such delisting determination to Nasdaq’s

hearing panel.

and management plans

Equity Requirement”),

among other continued listing criteria.

We were required to submit to Nasdaq a plan to regain compliance with the Stockholders’

Equity Requirement for consideration by the Nasdaq Listing Qualifications staff (“Nasdaq Staff”) by no later than January 2,

On January 2, 2020, we submitted a plan to regain compliance (the “Compliance Plan”) to the Nasdaq Staff.

On March 23, 2020, the Nasdaq Staff accepted the Compliance Plan and granted us an extension period pursuant to which we must

regain compliance with the Nasdaq Listing Rule 5550(b).

Among other things, the terms of such extension include that the Company

must complete an equity raise on or before May 18, 2020, and must publicly disclose on a Current Report on Form 8-K our

prior non-compliance with Nasdaq Listing Rule 5550(b) and the terms of such equity raise enabling us to regain compliance

with such rule, which Current Report on Form 8-K was filed with the SEC on April 24, 2020.

Notwithstanding the terms

of such extension period, if we fail to evidence compliance with Nasdaq Listing Rule 5550(b) upon the filing of our periodic

report for the period ended June 30, 2020, the Nasdaq Staff will provide written notification that our common stock will

be delisted from Nasdaq;

however, we may appeal such delisting determination to Nasdaq’s hearing panel.

On March 24, 2020, we were

officially notified by Nasdaq that we did not comply with Listing Rule 5605 (the “Audit Committee Rule”), which

requires that the audit committee of the Company’s board of directors include at least three independent directors.

In accordance

with Nasdaq’s Listing Rules, we were granted a cure period in order to regain compliance with the Audit Committee Rule by

(i) the earlier of (x) our next annual stockholders’

meeting or (y) February 10, 2021 or (ii) if

such annual stockholders’

meeting is held before August 10, 2020, then we were required to evidence compliance with

the Audit Committee Rule no later than that date.

On April 24, 2020, the

Company announced that it received written notification from Nasdaq that the Company regained compliance with Nasdaq’s minimum

bid price requirement of at least $1.00 per share under Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq

Capital Market.

The Company had previously been notified by Nasdaq on October 16, 2019, that the Company’s closing bid

price per share had been below $1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum

bid price requirement under Nasdaq Listing Rule 5550(a)(2).

According to the notification letter, the Company had 180 days

to regain compliance by meeting or exceeding the minimum bid price for a period of at least 10 consecutive trading days, but the

closing bid price of the Company’s common stock did not satisfy this requirement.

On April 24, 2020, however, Nasdaq

notified the Company that it has determined that the closing bid price of the Company’s common stock for the 10 consecutive

business days from April 9, 2020 through April 23, 2020 had been at least $1 per share.

Accordingly, the Company regained

compliance with the minimum bid price requirement, and the matter is closed.

On June 24, 2020, the

Company regained audit committee compliance, in resolution of the March 24, 2020 non-compliance notification described above.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Business and Viability of Operations, continued

Liquidity and management

The condensed consolidated financial

2 unchanged sentences

The Company has incurred net operating losses each year since inception.

March 31, 2020, the Company had cash and cash equivalents of $0.8 million, an accumulated deficit of approximately $190.4 million

and has not generated positive cash flows from operations.

The Company expects operating losses to continue in the foreseeable

future because of additional costs and expenses related to research and development activities, plans to expand its product portfolio,

and increase its market share.

The Company’s ability to transition to attaining profitable operations is dependent upon achieving

a level of revenues adequate to support its cost structure.

Based on current operating levels, the Company will need to raise additional

funds by selling additional equity or incurring debt.

To date, the Company has not generated significant revenues and has funded

its operations primarily through sales of its common stock in public markets, sales of common and preferred units prior to its

initial public offering (“IPO”) and proceeds from convertible notes.

Additionally, future capital requirements will

depend on many factors, including the rate of revenue growth, the selling price of the Company’s products, the expansion

of sales and marketing activities, the timing and extent of spending on research and development efforts and the continuing market

acceptance of the Company’s products.

These factors raise substantial doubt about the Company’s ability to continue

as a going concern.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

June 30, 2020, the Company had cash and cash equivalents of $12.1 million, an accumulated deficit of approximately $193.8

million and reported net cash used in operations of $4,832,000 during the six months ended June 30, 2020.

The Company expects

operating losses to continue in the foreseeable future because of additional costs and expenses related to research and development

activities, plans to expand its product portfolio, and increase its market share.

The Company’s ability to transition to

attaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure.

current operating levels, the Company will need to raise additional funds by selling additional equity or incurring debt.

the Company has not generated significant revenues and has funded its operations primarily through sales of its common stock in

public markets, sales of common and preferred units prior to its initial public offering (“IPO”) and proceeds from

convertible notes.

The Company also obtained a loan of $847,000, pursuant to the Paycheck Protection Program under Division

A, Title I of the Coronavirus Aid, Relief, and Economic Security Act, but the use of funds from such loan, by its terms, has been

limited to making payroll payments to our employees and other permitted purposes relating to the operation of our business.

Note 4 –

Borrowings –

Payroll Protection Program Note Agreement.

Additionally, future capital requirements will depend on many factors, including the rate of revenue growth,

the selling price of the Company’s products, the expansion of sales and marketing activities, the timing and extent of spending

on research and development efforts and the continuing market acceptance of the Company’s products.

These factors raise substantial

doubt about the Company’s ability to continue as a going concern.

Management of the Company intends

14 unchanged sentences

States of America (“U.S.

GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the

Securities Act of 1933, as amended (“Securities Act”).

Accordingly, they do not include all of the information and

notes required by U.S.

GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X

of the Securities Act of 1933, as amended (“Securities Act”).

Accordingly, they do not include all of the information

and notes required by U.S.

GAAP for complete financial statements.

These unaudited condensed consolidated financial statements include

all normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position

and the results of operations and cash flows.

Interim period results are not necessarily indicative of results of operations or

cash flows for a full year or any subsequent interim period.

These unaudited condensed consolidated financial statements

include all normal and recurring adjustments that, in the opinion of management, are necessary to fairly state the Company’s financial

position and the results of operations and cash flows.

Interim period results are not necessarily indicative of results of operations

or cash flows for a full year or any subsequent interim period.

The condensed consolidated balance sheet as of December 31,

has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by

2019 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required

GAAP for complete financial statements.

5 unchanged sentences

Actual results could differ from those estimates.

Deferred Offering Costs

Deferred offering costs, consisting

of legal, accounting and filing fees relating to public offerings, are capitalized.

The deferred offering costs will be offset

against public offering proceeds upon the effectiveness of an offering.

In the event that an offering is terminated, deferred offering

costs will be expensed.

As of March 31, 2020 and December 31, 2019, the Company had capitalized deferred offering costs of $154,000

and $0, respectively, in prepaid expenses and other current assets on the condensed consolidated balance sheet.

Concentration of Credit Risk

and Other Risks and Uncertainties

Financial instruments that potentially

subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

Financial instruments that

potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and

accounts receivable.

Cash and cash equivalents are deposited in demand and money market accounts at one financial institution.

At times, such deposits

may be in excess of insured limits.

The Company has not experienced any losses on its deposits of cash and cash equivalents.

At times, such deposits may be in excess of insured limits.

The Company has not experienced any losses on its deposits of cash

and cash equivalents.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Summary of Significant Accounting Policies, continued

The Company’s accounts

receivable are derived from revenue earned from customers located throughout the world.

receivables are derived from revenue earned from customers located throughout the world.

The Company performs credit evaluations

1 unchanged sentence

financial condition and sometimes requires partial payment in advance of shipping.

As of March 31, 2020

As of June 30,

2020 and December 31, 2019, there was no allowance for doubtful accounts.

As of March 31, 2020, the Company had two customers accounting

for 79% and 11% of accounts receivable.

As of December 31, 2019, the Company had three customers accounting for 37%, 28% and 20%

of accounts receivable.

The Company had one customer accounting for 66% of its net revenue for the three months ended March 31,

The Company had two customers accounting for 64% and 32% of its net revenue for the three months ended March 31, 2019.

WIRELESS TECHNOLOGIES, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three Months Ended March 31, 2020 and 2019

Summary of Significant Accounting Policies, continued

As of June 30, 2020, the Company had one customer

accounting for 80% of accounts receivable.

As of December 31, 2019, the Company had three customers accounting for 37%, 28%

and 20% of accounts receivable.

The Company had two customers accounting for 43% and 20% of its net revenue for the three months

ended June 30, 2020.

The Company had two customers accounting for 55% and 11% of its net revenue for the six months ended

June 30, 2020.

The Company had three customers accounting for 38%, 38% and 15% of its net revenue for the three months ended

June 30, 2019.

The Company had three customers accounting for 53%, 34% and 6% of its net revenue for the six months ended

June 30, 2019.

The Company’s future results

10 unchanged sentences

for the production of its transmit semiconductor chip and a single contractor in China for the production of its receive semiconductor

In March 2020, the World Health

Organization characterized the coronavirus (“COVID-19”) a pandemic, and the President of the United States

declared the COVID-19 outbreak a national emergency.

The rapid spread of the pandemic and the continuously evolving responses

to combat it have had an increasingly negative impact on the global economy.

In view of the rapidly changing business environment,

unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable

to fully determine its future impact on our business.

However, we are monitoring the progression of the pandemic and its potential

effect on our financial position, results of operations, and cash flows.

In March 2020, the World

Health Organization characterized the coronavirus (“COVID-19”) a pandemic, and the President of the United

States declared the COVID-19 outbreak a national emergency.

The rapid spread of the pandemic and the continuously evolving

responses to combat it have had an increasingly negative impact on the global economy.

Although we have not experienced significant

supply interruptions to date, certain of our third party manufacturers or suppliers have prioritized and allocated more resources

and capacity to supply raw materials to other companies engaged in the study of potential treatments or vaccinations for COVID-19.

We have also restricted access to our facilities to personnel and third parties who perform critical activities that must be performed

on-site and as a result, most of our personnel currently work remotely.

Such remote working policies may negatively impact productivity

and disrupt our business operations.

In view of the rapidly changing business environment, unprecedented market volatility

and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact

on our business.

However, we are monitoring the progression of the pandemic and its potential effect on our financial position,

results of operations, and cash flows.

Convertible Financial Instruments

3 unchanged sentences

The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative

instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument

that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable

generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument

with the same terms as the embedded derivative instrument would be considered a derivative instrument.

An exception to this rule

is when the host instrument is deemed to be conventional, as that term is described under applicable U.S.

instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid

instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise

applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a

separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Summary of Significant Accounting Policies, continued

When the Company has determined

5 unchanged sentences

date of redemption.

Warrants for Common Shares

and Derivative Financial Instruments

Warrants for common shares and

other derivative financial instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement

or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement).

Contracts which (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and

if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in

shares (physical settlement or net-share settlement), or (3) that contain reset provisions that do not qualify for the scope exception

are classified as equity or liabilities.

The Company assesses classification of its warrants for common shares and other derivatives

at each reporting date to determine whether a change in classification between equity and liabilities is required.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Summary of Significant Accounting Policies, continued

Warrants for Shares of Common

Stock and Derivative Financial Instruments

Warrants for our shares of common

stock and other derivative financial instruments are classified as equity if the contracts (1) require physical settlement

or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical

settlement or net-share settlement).

Contracts which (1) require net-cash settlement (including a requirement to net cash

settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty

a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain

reset provisions that do not qualify for the scope exception are classified as equity or liabilities.

The Company assesses classification

of its warrants for shares of common stock and other derivatives at each reporting date to determine whether a change in classification

between equity and liabilities is required.

The issuance of the convertible

5 unchanged sentences

conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per

share on the commitment date, to common shares, resulting in a discount on the convertible debt.

share on the commitment date, to shares of common stock, resulting in a discount on the convertible debt.

In an equity-classified

freestanding financial instrument, as of the date that a down round feature is triggered, the Company measures the fair value

of the instrument without the down round feature (that is, before the strike price is reduced) and the fair value of the

financial instrument with a strike price that reflects the adjustment from the down round.

The incremental difference in the

fair value is recorded a deemed dividend.

As the Company has an accumulated deficit, the deemed dividend is recorded as a

reduction of additional paid-in capital in the unaudited condensed consolidated balance sheet.

The Company increases the net

loss available to common stockholders by the amount of the deemed dividend.

Revenue Recognition

3 unchanged sentences

(1) identify the contract with a customer,

identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to

the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

considers customer purchase orders to be the contracts with a customer.

Revenues, net of expected discounts, are recognized when

the performance obligations of the contract with the customer are satisfied and when control of the promised goods are transferred

to the customer, typically when products, which have been determined to be the only distinct performance obligations, are shipped

to the customer.

(2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the

transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation

is satisfied.

The Company considers customer purchase orders to be the contracts with a customer.

Revenues, net of expected discounts,

are recognized when the performance obligations of the contract with the customer are satisfied and when control of the promised

goods are transferred to the customer, typically when products, which have been determined to be the only distinct performance

obligations, are shipped to the customer.

Expected costs of assurance warranties and claims are recognized as expense.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Summary of Significant Accounting Policies, continued

Taxes assessed by a governmental

24 unchanged sentences

unconditional.

We do not have any material contract assets as of March 31, 2020 or December 31, 2019.

We do not have any material contract assets as of June 30, 2020 or December 31, 2019.

(in thousands)

Contract liabilities

During the three months ended March 31, 2020 the Company recognized $286,000 of revenue that was included in the contract balances as of December 31, 2019.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Summary of Significant Accounting Policies, continued

During the three and six months ended June 30, 2020 the Company recognized $150,000 and $436,000, respectively, of revenue that was included in the contract balances as of December 31, 2019.

Revenue by Geographic Area

7 unchanged sentences

all changes within stockholders’

equity (deficit) that are not the result of transactions with stockholders.

other comprehensive loss includes the foreign currency translation adjustments arising from the consolidation of the Company’s

foreign subsidiary.

equity that are not the result of transactions with stockholders.

Accumulated other comprehensive

loss includes the foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiary

and the final closure of the subsidiary.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Summary of Significant Accounting Policies, continued

Foreign Currency

10 unchanged sentences

as a separate component of stockholders’

equity, while foreign currency transaction gains or losses, resulting from remeasuring

equity, while foreign currency transaction gains or losses, resulting from re-measuring

local currency to the U.S.

dollar are recorded in the condensed consolidated statement of operations in other income (expense),

net and were not material for the three months ended March 31, 2020 and 2019.

dollar are recorded in the condensed consolidated statement of operations in other expense,

net and were not material for the three and six months ended June 30, 2020 and 2019.

Advertising Costs

1 unchanged sentence

to sales and marketing expenses as incurred.

Advertising costs for the three months ended March 31, 2020 and 2019 were $13,000

Advertising costs for the three and six months ended June 30, 2020 were $3,000

and $16,000, respectively.

Advertising costs for the three and six months ended June 30, 2019 were not material.

Reverse Stock Split

On March 31, 2020, the

Company held a special meeting of its stockholders, at which its stockholders approved an amendment to the Company’s certificate

of incorporation, as amended, to effect a reverse stock split of all of the outstanding shares of common stock at a specific ratio

within a range from one-for-four to one-for-twenty, and to grant authorization to the board of directors to determine, in its sole

discretion, the specific ratio and timing of the reverse stock split.

On April 9, 2020, a 1-for-20 reverse stock split was

effected and the condensed consolidated financial statements have been retroactively adjusted.

All common stock share numbers,

warrants to purchase common stock, prices and exercise prices have been retroactively adjusted to reflect the reverse stock split.

The par value of the common stock and the Series A 8% Senior Convertible Preferred Stock, par value $0.0001 per share (the

“Series A Preferred Stock”) outstanding and its par value were not adjusted for the reverse stock split.

stock began trading on a split-adjusted basis on that day under the new CUSIP number 86633R 203.

Net Loss per Common Share

Basic net loss per common share

is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding

during the period, without consideration for potentially dilutive securities.

Diluted net loss per common share is computed by

dividing the net loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive

common share equivalents outstanding for the period determined using the treasury-stock and if-converted methods.

of the diluted net loss per common share calculation, convertible preferred stock, warrants for common stock, restricted stock

units and shares issuable upon the conversion of convertible notes payable are considered to be potentially dilutive securities.

For the three months ended March

31, 2020, warrants to purchase 703,099 shares of common stock, 250,000 shares of convertible preferred stock and 48,596 shares

of restricted stock have been excluded from the calculation of net loss per common share because the inclusion would be antidilutive.

For the three ended March 31, 2019, warrants to purchase 432,091 shares of common stock, and 24,640 shares of restricted

stock have been excluded from the calculation of net loss per common share because the inclusion would be antidilutive.

is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock

outstanding during the period, without consideration for potentially dilutive securities.

Diluted net loss per common share is

computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock

and potentially dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted

For purposes of the diluted net loss per common share calculation, convertible preferred stock, warrants for common stock,

restricted stock units and shares issuable upon the conversion of convertible notes payable are considered to be potentially dilutive

For the three and six months

ended June 30, 2020, warrants to purchase 7,337,199 shares of common stock, 250,000 shares of convertible preferred stock

and 46,929 shares of restricted stock have been excluded from the calculation of net loss per common share because the inclusion

would be antidilutive.

For the three and six months ended June 30, 2019, warrants to purchase 453,000 shares of common stock,

250,000 shares of preferred stock and 24,640 shares of restricted stock have been excluded from the calculation of net loss per

common share because the inclusion would be antidilutive.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Summary of Significant Accounting Policies, continued

Recently Issued and Adopted Accounting Pronouncements

In June 2018, the Financial

Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) No.

2018-07, “Compensation—Stock

Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting”.

ASU 2018-07 applies to all entities

that enter into share-based payment transactions for acquiring goods and services from nonemployees.

The amendments in ASU 2018-07

expand the scope of Topic 718, Compensation - Stock Compensation, to include share-based payments transactions to nonemployees.

Changes to the accounting for nonemployee awards as a result of ASU 2018-07 include:

1) equity-classified nonemployee share-based

payment awards are measured at the grant date, instead of the previous requirement to remeasure the awards through the performance

completion date, 2) for awards with performance conditions, compensation cost is recognized when the achievement of the performance

condition is probable, rather than upon achievement, and 3) the current requirement to reassess the classification (equity or liability)

for nonemployee awards upon vesting is eliminated.

ASU 2018-07 clarifies that Topic 718 does not apply to financing transactions

or awards granted to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018.

adopted this guidance as of January 1, 2019 and the adoption did not have a significant impact on the condensed consolidated financial

In August 2018, the FASB issued

ASU 2018-13, “Fair Value Measurement (Topic 820)”.

The FASB developed the amendments to Accounting Standards

Codification 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in

the notes to financial statements by focusing on requirements that clearly communicate the most important information to users

of the financial statements.

This update eliminates certain disclosure requirements for fair value measurements for

all entities, requires public entities to disclose certain new information and modifies some of the existing disclosure requirements.

standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years,

with early adoption permitted.

The Company adopted this guidance as of January 1, 2020 and the adoption did not have a significant

impact on the condensed consolidated financial statements.

In August 2018, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value

Measurement (Topic 820)”.

The FASB developed the amendments to Accounting Standards Codification 820 as part of its broader

disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing

on requirements that clearly communicate the most important information to users of the financial statements.

This update eliminates

certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new

information and modifies some of the existing disclosure requirements.

The standard will be effective for fiscal years beginning

after December 15, 2019, including interim periods within such fiscal years, with early adoption permitted.

The Company adopted

this guidance as of January 1, 2020 and the adoption did not have a significant impact on the condensed consolidated financial

Recently Issued and Not Yet

Adopted Accounting Pronouncements

In February 2016, the FASB issued

ASU 2016-02, “Leases”.

In February 2016, the FASB

issued ASU 2016-02, “Leases”.

The objective of the update is to increase transparency and comparability among organizations

3 unchanged sentences

leases are not recorded as lease assets and lease liabilities on the balance sheet.

In November 2019, the FASB decided to defer

the mandatory effective date of ASU 2016-02 to fiscal years beginning after December 15, 2020 for certain entities, including private

As an emerging growth company, the Company is allowed to adopt accounting pronouncements at the same time as non-public

business entities.

In November 2019, the FASB decided to

defer the mandatory effective date of ASU 2016-02 to fiscal years beginning after December 15, 2020 for certain entities,

including private companies.

As an emerging growth company, the Company is allowed to adopt accounting pronouncements at the same

time as non-public business entities.

As a result, we will adopt the update for our fiscal year beginning after December 15,

The Company does

not expect the adoption of this standard to significantly impact the condensed consolidated financial statements.

The Company does not expect the adoption of this standard to significantly impact the condensed consolidated financial statements.

In August 2020, the FASB issued

ASU 2020-06 "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's

Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity".

This ASU simplifies

accounting for convertible instruments by removing major separation models required under current U.S.

Consequently, more

convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single

equity instrument with no separate accounting for embedded conversion features.

The ASU removes certain settlement conditions that

are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify

for the exception.

The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.

As an emerging growth

company, the Company is allowed to adopt the accounting pronouncement at the same time as non-public business entities.

the Company will adopt the update for its fiscal year beginning after December 15, 2023.

The Company is evaluating the impact of

ASU 2020-06 on its condensed consolidated financial statements.

We have reviewed other recent

1 unchanged sentence

condensed consolidated financial statements as a result of future adoption.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Balance Sheet Components

3 unchanged sentences

Total inventories

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Balance Sheet Components, continued

Property and equipment, net (in thousands):

6 unchanged sentences

Depreciation and amortization

expense for the three months ended March 31, 2020 and 2019 was $14,000 and $14,000, respectively.

expense for the three months ended June 30, 2020 and 2019 was $15,000 and $14,000, respectively.

Depreciation and amortization

expense for the six months ended June 30, 2020 and 2019 was $29,000 and $28,000, respectively.

Accrued liabilities (in thousands):

Accrued vacation

Accrued rebate

Contingency accrual

Accrued compensation

Customer advances

Accrued audit fees

Accrued compensation

Accrued rebate

Accrued other

Total accrued liabilities

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Funding Agreement

On January 23, 2020, we entered

into a funding agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated

On January 23, 2020, we

entered into a funding agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated

accredited investor of a convertible promissory note in the principal amount of $111,100, reflecting a 10% original issue discount,

1 unchanged sentence

$9.80 per share in consideration for $100,000, which was funded on January 24, 2020.

The Funding Agreement, was due 45 days from

execution of the Funding Agreement, or March 9, 2020, and the investor was granted a most favored nation right.

2020, the outstanding debt owed to such investor pursuant to the Funding Agreement was fully repaid.

During the three months ended

March 31, 2020, the Company recognized $20,000 of interest expense from amortization of debt discounts.

Convertible Promissory Note

On March 30, 2020, the Company

completed a private placement (the “March 2020 Private Placement”) of a senior secured convertible instrument in the

principal amount of $2,040,000 (the “March 2020 Note”) and a warrant (the “March 2020 Warrant”) to purchase

227,679 shares of common stock at an exercise price of $6.40 per share, pursuant to which Maxim Group LLC, the representative of

the underwriters in this offering (“Maxim”), acted as placement agent.

The March 2020 Note and March 2020 Warrant were

issued pursuant to a securities purchase agreement, entered into as of March 22, 2020 (the “March 2020 Purchase Agreement”)

by and between the Company and an institutional investor (the “Investor”).

The March 2020 Private Placement resulted

in gross proceeds of $1,700,000, before fees and other expenses associated with the transaction, including but not limited to,

an $85,000 commitment fee payable to the Investor.

Additionally, the Company agreed to issue to Maxim a warrant to purchase up

to an aggregate of 20,400 shares of common stock, subject to adjustment, as partial consideration for serving as placement agent

in connection with the March 2020 Private Placement.

The March 2020 Note ranks senior

to the Company’s existing and future indebtedness and is secured to the extent and as provided in the Security Agreements

entered into between the Investor and each of the Company and its wholly-owned subsidiary, in connection with the March 2020 Private

The March 2020 Note is convertible in whole or in part at the option of the Investor into shares of common stock (the

“Conversion Shares”) at the Conversion Price (as defined below) at any time following the earlier of (i) 60 days from

execution of the Purchase Agreement and (ii) the date on which a registration statement covering the shares of common stock underlying

each of the March 2020 Note and the related warrant is declared effective by the U.S.

Securities and Exchange Commission (the “SEC”);

however, if the Company enters into an underwriting agreement within 45 days of the date on which the March 2020 Note was issued

in connection with an underwritten offering that closes within 45 days of the execution of the Purchase Agreement, the Investor

may not convert the March 2020 Note prior to the 61st day after the date on which such underwriting agreement was executed.

Repayment of the convertible promissory

note was due 45 days from execution of the Funding Agreement, or March 9, 2020, and the investor was granted a most favored

nation right.

On March 31, 2020, the outstanding debt owed to such investor pursuant to the Funding Agreement was fully repaid.

During the three and six months

ended June 30, 2020, the Company recognized $0 and $20,000, respectively, of interest expense from amortization of debt discounts

related to the Funding Agreement.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Borrowings, continued

The March 2020 Note defines

“Conversion Price”

as equal to the lesser of (a) 90% of the average of the five lowest daily VWAPs during the previous

twenty trading days prior to delivery to the Company of the Investor’s applicable notice of conversion (the “Conversion

Notice”) and (b) $6.40 (the “Base Conversion Price”).

The Base Conversion Price is subject to full ratchet antidilution

protection, subject to certain price limitations required by the rules and regulations of the Nasdaq Stock Market (“Nasdaq”)

and certain exceptions, upon any subsequent transaction at a price lower than the Base Conversion Price then in effect and standard

Convertible Promissory Note

On March 30, 2020, the

Company completed a private placement (the “March 2020 Private Placement”) of a senior secured convertible instrument

(the “March 2020 Note”) and a warrant (the “March 2020 Warrant”) to purchase 227,679 shares of

common stock at an exercise price of $6.40 per share, pursuant to which Maxim Group LLC (“Maxim”), acted as placement

The March 2020 Note and March 2020 Warrant were issued pursuant to a securities purchase agreement, entered into

as of March 22, 2020 (the “March 2020 Purchase Agreement”) by and between the Company and an institutional

The March 2020 Private Placement resulted in gross proceeds of $1,700,000, before fees and other expenses associated

with the transaction, including but not limited to, an $85,000 commitment fee payable to such investor.

The net proceeds received

by us in connection with the March 2020 Private Placement were used primarily for working capital, debt repayment and general

corporate purposes.

Additionally, the Company issue a warrant to Maxim to purchase up to an aggregate of 20,400 shares of common

stock, subject to adjustment, as partial consideration for serving as placement agent in connection with the March 2020 Private

Placement (the “March 2020 Maxim Warrant”).

The March 2020 Note ranked

senior to the Company’s existing and future indebtedness and was secured to the extent and as provided in the security agreements

entered into between the investor and each of the Company and its wholly-owned subsidiary, in connection with the March 2020

Private Placement.

The March 2020 Note was convertible in whole or in part at the option of the Investor into shares of common

stock at a conversion price equal to the lesser of (a) 90% of the average of the five lowest daily VWAPs during the previous

twenty trading days prior to delivery to the Company of such investor’s applicable notice of conversion and (b) $6.40,

subject to certain adjustments, at any time following the earlier of (i) 60 days from execution of the March 2020 Purchase

Agreement and (ii) the date on which a registration statement covering the shares of common stock underlying each of the March 2020

Note and the related warrant is declared effective by the U.S.

Securities and Exchange Commission (the “SEC”);

if the Company entered into an underwriting agreement within 45 days of the date on which the March 2020 Note was issued in

connection with an underwritten offering that closes within 45 days of the execution of the Purchase Agreement, such investor may

not convert the March 2020 Note prior to the 61st day after the date on which such underwriting agreement was executed.

The March 2020 Note contained

full ratchet anti-dilution protection, subject to certain price limitations required by the rules and regulations of Nasdaq

and certain exceptions, upon any subsequent transaction at a price lower than the conversion price then in effect and standard

adjustments in the event of stock dividends, stock splits, combinations or similar events.

Additionally, upon three days’

written notice to the holder after receipt of a Conversion Notice, in lieu of delivering Conversion Shares, the Company has the

right to pay the Investor in cash an amount equal to 103% of the portion of the outstanding principal amount stated in such Conversion

Further, at the Investor’s option, the March 2020 Note is convertible into shares of common stock or redeemable for

103% of the portion of the outstanding principal amount to be converted in the event that any transaction causes the Conversion

Price to be lower than as required by Nasdaq rules and regulations.

Subject to certain exceptions, commencing on the Conversion

Trigger Date and for a nine-month period after such date, the Investor may convert only up to an aggregate of $102,000 in outstanding

principal amount during any calendar month.

written notice to the holder after receipt of a notice of conversion, in lieu of delivering shares of common stock upon a conversion,

the Company had the right to pay the investor, in cash, an amount equal to 103% of the portion of the outstanding principal amount

stated in such notice of conversion.

Further, at the investor’s option, the March 2020 Note was convertible into shares

of common stock or redeemable for 103% of the portion of the outstanding principal amount to be converted in the event that any

transaction causes the conversion price to be lower than as required by Nasdaq rules and regulations.

Subject to certain exceptions,

commencing on the Conversion Trigger Date (as such term is defined in the March 2020 Note) and for a nine-month period after

such date, the investor could convert only up to an aggregate of $102,000 in outstanding principal amount during any calendar month.

At any time after issuance of

the March 2020 Note, the Company may repay all (but not less than all) of the outstanding principal amount of the March 2020 Note

upon ten days’

written notice to the Investor (the “Prepayment Notice”).

If the Company exercises its right to

prepay the March 2020 Note, the Investor shall have the right, upon five days written notice to the Company after receipt of the

Prepayment Notice, to convert up to 33% of the principal amount of the March 2020 Note at the Conversion Price.

The Investor also

has the right to make the Company repay 105% of the outstanding principal amount of the March 2020 Note in the event of a Change

of Control (as defined in the Purchase Agreement).

the March 2020 Note, the Company could repay all (but not less than all) of the outstanding principal amount of the March 2020

Note upon ten days’

written notice to the investor.

If the Company exercised its right to prepay the March 2020 Note,

the investor had the right, upon five days written notice to the Company after receipt of the notice of prepayment, to convert

up to 33% of the principal amount of the March 2020 Note at the applicable conversion price.

The investor also had the right

to require the Company to repay 105% of the outstanding principal amount of the March 2020 Note in the event of a Change of

Control (as defined in the March 2020 Purchase Agreement).

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Borrowings, continued

At any time after the closing

date of the March 2020 Private Placement, in the event that the Company issues or sells any shares of common stock or common stock

equivalents (as defined in the March 2020 Note), subject to certain exceptions, at an effective price lower than the Base Conversion

Price then in effect or without consideration, then the Base Conversion Price shall be reduced to the price per share paid for

such shares of common stock or common stock equivalents.

date of the March 2020 Private Placement, in the event that the Company issued or sold any shares of common stock or common

stock equivalents (as defined in the March 2020 Note), subject to certain exceptions, at an effective price lower than the

conversion price then in effect or without consideration, then the conversion price would be reduced to the price per share paid

for such shares of common stock or common stock equivalents.

In connection with the March 2020

2020 Note, the Company issued warrants to investors and Maxim to purchase common shares of 227,679 and 20,400, respectively (see

Note 6 –

Note, the Company issued the March 2020 Warrant to the investor and the March 2020 Maxim Warrant to Maxim, respectively

(see Note 6 –

Convertible Preferred Stock and Stockholders’

Equity (Deficit) for fair value computation).

The sum of the

fair value of the warrants, the original issue discount for interest and issuance costs for the March 2020 Notes were recorded

as debt discounts to be amortized to interest expense over the respective term using the effective interest method.

three months ended March 31, 2020, the Company recognized $17,000 of interest expense from the amortization of debt discounts.

The March 2020 Note contains

Equity for fair value computation).

The sum of the fair

value of the March 2020 Warrant and the March 2020 Maxim Warrant, and the original issue discount for interest and issuance

costs for the March 2020 Note were recorded as debt discounts to be amortized to interest expense over the respective term

using the effective interest method.

When the March 2020 Note was paid off (see paragraph below), all remaining debt discounts

were recognized as interest expense in the condensed consolidated statement of operations.

As a result of two adjustments in the

initial conversion price, the Company modified the warrant agreements and recorded a deemed dividend of $134,000 during the six

months ended June 30, 2020 (See Note 6 –

Convertible Preferred Stock and Stockholders’

The March 2020 Note contained

several embedded conversion features.

The Company determined that there was no significant value for the embedded conversion features

The Company determined that there was no significant value to the embedded conversion features

as the underlying events to trigger the conversion features were not likely to occur.

1 unchanged sentence

liability related to the March 2020 Note.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

On April 29, 2020, the

outstanding debt of $2,040,000, owed to the Investor pursuant to the March 2020 Note, was fully repaid.

During the three and

six months ended June 30, 2020, the Company recognized $1,352,000 and $1,389,000 of interest expense from the amortization

of debt discounts as a result of the passage of time and the payoff of the March 2020 Note.

Payroll Protection

Program Note Agreement

On May 3, 2020, we received

a loan (the “PPP Loan”) from Wells Fargo Bank, National Association in the aggregate amount of $847,000, pursuant to

the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic

Security Act, which was enacted on March 27, 2020.

The PPP Loan was funded on May 7, 2020.

The PPP Loan, which

is in the form of a PPP promissory note and agreement, dated May 3, 2020 (the “PPP Note Agreement”), matures on

May 3, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 1, 2020.

Loan may be prepaid by us at any time prior to maturity with no prepayment penalties.

We intend to use the PPP Loan amount for

payroll costs, costs used to continue group health care benefits, rent, and utilities.

Under the terms of the PPP Note Agreement,

certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses, as described in the PPP Note Agreement.

Fair Value Measurements

13 unchanged sentences

The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Fair Value Measurements, continued

The Company’s financial

assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 by level

within the fair value hierarchy, are as follows:

assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019

by level within the fair value hierarchy, are as follows:

(in thousands)

March 31, 2020

June 30, 2020

Quoted prices

Derivative liability

Warrant liability

(in thousands)

4 unchanged sentences

There were no transfers between

Level 1, 2 or 3 during the three months ended March 31, 2020 or March 31, 2019.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Fair Value Measurements, continued

Level 1, 2 or 3 during the three and six months ended June 30, 2020 or June 30, 2019.

Warrant Liability

1 unchanged sentence

a summary of changes in fair value of the Company’s warrant liability measured at fair value using significant unobservable

inputs (Level 3) for the three months ended March 31, 2020 and 2019:

For the three months ended

(in thousands)

March 31, 2020

March 31, 2019

inputs (Level 3) for the three and six months ended June 30, 2020 and 2019:

the three months ended

the six months ended

Beginning balance

3 unchanged sentences

the warrant liability are recorded in change in fair value of warrant liability in the condensed consolidated statements of operations.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Fair Value Measurements, continued

A summary of the weighted average

significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liability that is categorized within

Level 3 of the fair value hierarchy as of March 31, 2020 and December 31, 2019 is as follows:

As of December 31,

March 31, 2020

Level 3 of the fair value hierarchy as of June 30, 2020 and December 31, 2019 is as follows:

June 30, 2020

December 31, 2019

5 unchanged sentences

a summary of changes in fair value of the Company’s derivative liability measured at fair value using significant unobservable

inputs (Level 3) for the three months ended March 31, 2020 and 2019:

For The Three Months Ended

(in thousands)

March 31, 2020

March 31, 2019

Beginning balance

Change in fair value

Ending balance

As of March 31, 2020, the Company

measured the fair value of the derivative by estimating the fair value of the Series A Preferred Stock as if conversion occurred

on March 31, 2020.

The Company calculated value of the conversion feature using the Fixed Conversion Price of the Series A Preferred

Stock, as adjusted to 95% of the volume weighted average price of the common stock for the previous ten trading days and the specified

floor price of $30.00.

There was no change in the fair value of the derivative liability for the three months ended March 31, 2020

because the volume weighted average price of the common stock was below the specified floor price.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

inputs (Level 3) for the three and six months ended June 30, 2020 and 2019:

The Three Months Ended

The Six Months Ended

in fair value

As of June 30, 2020, the

Company measured the fair value of the derivative by estimating the fair value of the Series A Preferred Stock as if conversion

occurred on June 30, 2020.

The Company calculated value of the conversion feature using the Fixed Conversion Price of the

Series A Preferred Stock, as adjusted to 95% of the volume weighted average price of the common stock for the previous ten

trading days and the specified floor price of $30.00.

There was no change in the fair value of the derivative liability for the

six months ended June 30, 2020 because the volume weighted average price of the common stock was below the specified floor

Convertible Preferred Stock and Stockholders’

Equity (Deficit)

Series A 8% Senior Convertible

1 unchanged sentence

On April 18, 2019, we entered

into a Securities Purchase Agreement, dated as of April 18, 2019, with Lisa Walsh (the “Preferred SPA”), pursuant

to which we issued 250,000 shares of our Series A 8% Senior Convertible Preferred Stock, par value $0.0001 per share (the “Series

A Preferred Stock”), which shares have a stated value of $4.00, grant holders the same voting rights as holders of our shares

of common stock, and are convertible into shares of our common stock at price of $80.00 per share, subject to a floor price of

$30.00 and to adjustment under our Certificate of Designations of the Preferences, Rights and Limitations of the Series A Preferred

Stock, in consideration for $1,000,000 (the “Initial Tranche”).

The Series A Preferred Stock may be issued in tranches

of at least $500,000 and in an aggregate of up to $5 million.

In connection with the Initial Tranche, the Company also issued to

Walsh a warrant to purchase 12,756 shares of our common stock.

The Series A Preferred Stock

contains an embedded conversion feature that the Company has determined is a derivative requiring bifurcation.

The fair value of

the derivative liability at the issuance of the Series A Preferred Stock was $216,000, which was recorded as a derivative liability

with the offset recorded as a discount to the Series A Preferred Stock.

into a Securities Purchase Agreement, dated as of April 18, 2019, with Lisa Walsh (the “Preferred SPA”),

pursuant to which we issued 250,000 shares of our Series A Preferred Stock to Ms.

Walsh, which shares have a stated value

of $4.00, grant holders the same voting rights as holders of our shares of common stock, and are convertible into shares of our

common stock at price of $80.00 per share, subject to a floor price of $30.00 and to adjustment under our Certificate of Designations

of the Preferences, Rights and Limitations of the Series A Preferred Stock, in consideration for $1,000,000 (the “Initial

Tranche”).

The Series A Preferred Stock may be issued in tranches of at least $500,000 and in an aggregate of up to

In connection with the Initial Tranche, the Company also issued to Ms.

Walsh a warrant to purchase 12,756 shares

of our common stock.

The Series A Preferred

Stock contains an embedded conversion feature that the Company has determined is a derivative requiring bifurcation.

The fair value

of the derivative liability at the issuance of the Series A Preferred Stock was $216,000, which was recorded as a derivative

liability with the offset recorded as a discount to the Series A Preferred Stock.

(See Note 5 –

Fair Value Measurements for the fair

value computation.).

Fair Value Measurements

for the fair value computation.).

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

The authorized, issued and outstanding

shares of Series A Preferred Stock and liquidation preferences as of March 31, 2020, were as follows:

shares of Series A Preferred Stock and liquidation preferences as of June 30, 2020, were as follows:

Series A 8 % Senior Convertible Preferred Stock

The Series A Preferred Stock

rights, privileges and preferences are as follows:

The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at the rate per share of 8% per

annum, payable on conversion.

The form of the dividend payment on the Series A Preferred Stock will be determined based on the

legal availability of funds for the payment and the satisfaction of the Equity Conditions (as defined in the Certificate of Designations)

for the 5 consecutive trading days immediately prior to the payment date.

The form of the payment, depending on the priority, may

be made in cash or shares of common stock at the Company’s option.

If funds are not available and the Equity Conditions have

not been met, the dividends will accrue to the next payment date or accrete to the stated value.

The Company accrued dividends

of $20,000 for the three months ended March 31, 2020.

The Series A Preferred

Stock rights, privileges and preferences are as follows:

The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at the rate per share of

8% per annum, payable on conversion.

The form of the dividend payment on the Series A Preferred Stock will be determined based

on the legal availability of funds for the payment and the satisfaction of the Equity Conditions (as defined in the Certificate

of Designations) for the 5 consecutive trading days immediately prior to the payment date.

The form of the payment, depending on

the priority, may be made in cash or shares of common stock at the Company’s option.

If funds are not available and the Equity

Conditions have not been met, the dividends will accrue to the next payment date or accrete to the stated value.

The Company accrued

dividends of $20,000 and $40,000 for the three and six months ended June 30, 2020, respectively.

Rights —

4 unchanged sentences

payment, then the entire assets will be distributed only to the holders of the Series A Preferred Stock.

A fundamental or change

of control transaction is not deemed a liquidation.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Convertible Preferred Stock and Stockholders’

Equity (Deficit), continued

Each share of Series A Preferred Stock is convertible at the option of the holder into the number of shares

of common stock (subject to adjustment for certain events, including dilutive issuances, stock splits, and reclassifications) determined

by multiplying such number by the ratio of the stated value by a conversion price, which price is originally equal to $80.00 (the

“Fixed Conversion Price”).

However, if the closing price of the common stock is less than the Fixed Conversion Price,

then the Fixed Conversion Price may be reduced to equal 95% of the lowest volume weighted average price of the common stock for

the previous 10 trading days, which price shall not be less than $30.00.

Notwithstanding the foregoing, unless the Company obtains

stockholder approval pursuant to the rules and regulations of The NASDAQ Capital Market, the Company cannot issue shares of common

stock upon conversion of the Series A Preferred Stock in the event that such issuance exceeds 19.99% of the issued and outstanding

shares of the Company’s common stock as of April 18, 2019 or if such conversion is considered a “change of control”

A fundamental or

change of control transaction is not deemed a liquidation.

Each share of Series A Preferred Stock is convertible at the option of the holder into the number of

shares of common stock (subject to adjustment for certain events, including dilutive issuances, stock splits, and reclassifications)

determined by multiplying such number by the ratio of the stated value ($4.00) by a conversion price, which price was originally

equal to $4.00 (the “Fixed Conversion Price”) and has been adjusted to $80.00 in connection with the 1-for-20 reverse

stock split (see Note 2 –

Summary of Significant Accounting Policies).

However, if the closing price of the common stock

is less than the Fixed Conversion Price, then the Fixed Conversion Price may be reduced to equal 95% of the lowest volume weighted

average price of the common stock for the previous 10 trading days, which price shall not be less than $30.00.

Notwithstanding

the foregoing, unless the Company obtains stockholder approval pursuant to the rules and regulations of The NASDAQ Capital

Market, the Company cannot issue shares of common stock upon conversion of the Series A Preferred Stock in the event that

such issuance exceeds 19.99% of the issued and outstanding shares of the Company’s common stock as of April 18, 2019

or if such conversion is considered a “change of control”

under NASDAQ rules and regulations.

2 unchanged sentences

could be converted.

So long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without first obtaining

the approval of more than 67% of the holders of Series A Preferred Stock then outstanding, voting together as a separate class

(a) alter or amend the Certificate of Designations or alter or change adversely the powers, rights or preferences of the Series

A Preferred Stock, including amending the Company’s certificate of incorporation or other charter documents in any manner

adversely affecting the holders of the Series A Preferred Stock;

(b) authorize or create any class of stock ranking as to

dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A Preferred

So long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without first

obtaining the approval of more than 67% of the holders of Series A Preferred Stock then outstanding, voting together as a

separate class (a) alter or amend the Certificate of Designations or alter or change adversely the powers, rights or preferences

of the Series A Preferred Stock, including amending the Company’s certificate of incorporation or other charter documents

in any manner adversely affecting the holders of the Series A Preferred Stock;

(b) authorize or create any class of stock

ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A

Preferred Stock;

or (d) enter into any agreement with respect

to any of the foregoing.

The Series A Preferred Stock is not mandatorily redeemable as it does not have a set redemption date or a date after which

the shares may be redeemed by the holders.

However, if a Triggering Event (as defined in the Certificate of Designations) occurs,

then each holder will receive 120% of the aggregate stated value, plus all accrued and unpaid dividends and any other fees or liquidated

Additionally, upon such an event, the divided rate of the Series A Preferred Stock increases to 18% per annum.

Event is defined as any (1) default on credit obligations;

(2) default on payment of certain Series A Preferred Stock payments

or a default under the Certificate of Designations and any related transaction document entered into in connection with the issuance

of the Series A Preferred Stock;

(3) bankruptcy of the Company;

(4) ineligibility for listing of the Company’s common stock

on a trading market;

(5) change of control or fundamental transaction entered into by the Company, or other transaction entered

into by the Company where more than 51% of the Company’s assets are sold;

(6) failure of the Company to perform certain regulatory

(7) failure to timely deliver certificates representing shares of common stock upon conversion of the shares of Series

A Preferred Stock;

(8) failure of the Company to maintain a sufficient number of reserved shares pursuant to the Preferred SPA;

and (9) judgment is entered or filed against the Company or its subsidiaries in excess of an aggregate of $100,000 or the Company

or any of its subsidiaries experiences a loss of property in excess of an aggregate of $100,000.

The Company has elected not to

adjust the carrying values of the Series A Preferred Stock to the liquidation preferences of such shares because it is uncertain

whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares and

at the balance sheet date, these circumstances were not probable.

Subsequent adjustments to the carrying values of the liquidation

preferences will be made only when it becomes probable that such a liquidation event will occur.

or (d) enter into

any agreement with respect to any of the foregoing.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity (Deficit), continued

Equity, continued

The Series A Preferred Stock is not mandatorily redeemable as it does not have a set redemption date or a date after

which the shares may be redeemed by the holders.

However, if a Triggering Event (as defined in the Certificate of Designations)

occurs, then each holder will receive 120% of the aggregate stated value, plus all accrued and unpaid dividends and any other fees

or liquidated damages.

Additionally, upon such an event, the divided rate of the Series A Preferred Stock increases to 18%

A Triggering Event is defined as any (1) default on credit obligations;

(2) default on payment of certain

Series A Preferred Stock payments or a default under the Certificate of Designations and any related transaction document

entered into in connection with the issuance of the Series A Preferred Stock;

(3) bankruptcy of the Company;

(4) ineligibility

for listing of the Company’s common stock on a trading market;

(5) change of control or fundamental transaction entered

into by the Company, or other transaction entered into by the Company where more than 51% of the Company’s assets are sold;

(6) failure of the Company to perform certain regulatory reporting;

(7) failure to timely deliver certificates representing

shares of common stock upon conversion of the shares of Series A Preferred Stock;

(8) failure of the Company to maintain

a sufficient number of reserved shares pursuant to the Preferred SPA;

and (9) judgment is entered or filed against the Company

or its subsidiaries in excess of an aggregate of $100,000 or the Company or any of its subsidiaries experiences a loss of property

in excess of an aggregate of $100,000.

The Company has elected not to adjust the carrying values of the Series A Preferred

Stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate

the Company to pay the liquidation preferences to holders of shares and at the balance sheet date, these circumstances were not

Subsequent adjustments to the carrying values of the liquidation preferences will be made only when it becomes probable

that such a liquidation event will occur.

Upon a Subsequent Financing —

So long as holders of shares of Series A Preferred Stock hold such shares with

an aggregate stated value equal to or exceeding $250,000, upon any issuance of shares of our common stock, common stock equivalents

So long as holders of shares of Series A Preferred Stock hold such shares

with an aggregate stated value equal to or exceeding $250,000, upon any issuance of shares of our common stock, common stock equivalents

(as defined in the Preferred SPA), conventional debt or a combination of such securities and/or debt (a “Subsequent Financing”),

3 unchanged sentences

provided for in the Subsequent Financing.

In addition, so long as holders of shares of Series A Preferred Stock hold such shares

with an aggregate stated value equal to or exceeding $500,000, if we effect a Subsequent Financing, such holders have a right to

tender shares of Series A Preferred Stock for the securities offered pursuant to a Subsequent Financing.

In addition, so long as holders of shares of Series A Preferred Stock hold such

shares with an aggregate stated value equal to or exceeding $500,000, if we effect a Subsequent Financing, such holders have a

right to tender shares of Series A Preferred Stock for the securities offered pursuant to a Subsequent Financing.

Equity Sales —

3 unchanged sentences

of Designations, such conversion price will be reduced to such the effective price of such issued securities.

On January 30, 2018, the Company’s

board of directors approved the establishment of the Company’s 2018 Long-Term Stock Incentive Plan (the “LTIP”)

On January 30, 2018, the

Company’s board of directors approved the establishment of the Company’s 2018 Long-Term Stock Incentive Plan (the “LTIP”)

and termination of its Carve-Out Plan (the “Plan”).

3 unchanged sentences

each new fiscal year;

provided that, in any year no more than 8% of the common stock or derivative securitization with common

stock underlying 8% of the common stock may be issued in any fiscal year.

Thereafter, the 15% evergreen provision governs the

For fiscal year 2020, up to 99,619 shares of common stock are available for participants under the LTIP.

In connection with the termination

of the Plan, on January 31, 2018, the Company issued to its employees and directors 64,224 and 7,656 shares of restricted common

stock (“January 2018 Restricted Stock Grant”), respectively.

Such shares of restricted common stock were granted outside

the LTIP’s first year share availability pool, are fully vested, and were released to the employees and directors in three

tranches at the rate of 33.4%, 33.3% and 33.3% on September 1, 2018, March 1, 2019 and September 1, 2019, respectively.

event an employee voluntarily resigns, the release dates of the shares will be extended such that only 16.5% of the shares are

released every nine months, until 100% are released.

In the event that a director voluntarily resigns, each of the release dates

will be extended nine months.

For the three months ended March

31, 2020, 353 shares of restricted stock were released with an intrinsic value of approximately $2,000.

As of March 31, 2020, there

were 705 shares of restricted stock remaining under the January 2018 Restricted Stock Grant to be released to a terminated employee

in two equal tranches over the next 11 months.

provided that, in any year no more than 8% of the common stock or derivative securitization with common stock

underlying 8% of the common stock may be issued in any fiscal year.

Thereafter, the 15% evergreen provision governs the LTIP.

fiscal year 2020, up to 99,619 shares of common stock are available for participants under the LTIP.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity (Deficit), continued

On January 4, 2019, the Company

awarded 20,000 deferred shares to Michael Howse, a member of the Company’s board of directors, in connection with a Deferred

Shares Agreement under the LTIP.

The shares vest immediately prior to a significant change in ownership, defined as a Fundamental

Transaction in the agreement.

In light of this performance vesting condition, the Company has not recorded any stock compensation

expense for the issuance of these shares during the three ended March 31, 2020.

On September 9, 2019, the Company

issued 7,500 shares of restricted common stock to George Oliva, the Company’s new Chief Financial Officer, as an inducement

Equity, continued

In connection with the termination

of the Plan, on January 31, 2018, the Company issued to its employees and directors 64,224 and 7,656 shares of restricted

common stock (“January 2018 Restricted Stock Grant”), respectively.

Such shares of restricted common stock were

granted outside the LTIP’s first year share availability pool, are fully vested, and were released to the employees and directors

in three tranches at the rate of 33.4%, 33.3% and 33.3% on September 1, 2018, March 1, 2019 and September 1, 2019,

respectively.

In the event an employee voluntarily resigns, the release dates of the shares will be extended such that only 16.5%

of the shares are released every nine months, until 100% are released.

In the event that a director voluntarily resigns, each of

the release dates will be extended nine months.

For the three and six

months ended June 30, 2020,0 and 353 shares of restricted stock were released with an intrinsic value of approximately

$0 and $2,000, respectively.

As of June 30, 2020, there were 705 shares of restricted stock remaining under the

January 2018 Restricted Stock Grant to be released to a terminated employee in two equal tranches over the next 8

On January 4, 2019, the

Company awarded 20,000 deferred shares to Michael Howse, a member of the Company’s board of directors, in connection with

a Deferred Shares Agreement under the LTIP.

The shares vest immediately prior to a significant change in ownership, defined as

a Fundamental Transaction in the agreement.

In light of this performance vesting condition, the Company has not recorded any stock

compensation expense for the issuance of these shares during the three and six months ended June 30, 2020 and 2019, respectively.

On September 9, 2019, the

Company issued 7,500 shares of restricted common stock to George Oliva, the Company’s new Chief Financial Officer, as an

inducement grant.

Such shares were issued outside the Company’s LTIP.

The Company will record stock compensation expense over the four-year

During the three months ended

March 31, 2020, the Company issued 2,000 common shares to employees under the Company’s LTIP.

During the three months ended

March 31, 2019, the Company did not issue any shares under the Company’s LTIP.

February 2020 Private Placement

February 28, 2020, the Company completed a private placement (the “February 2020 Private Placement”) of 91,062

units (the “Units”), each unit consisting of (i) one (1) share of common stock and (ii) a warrant to purchase 0.50

of a share of common stock (the “February 2020 Warrants”), at a price per Unit of $9.17.

The Units were issued pursuant

to a Unit Purchase Agreement, dated February 4, 2020, and a subscription agreement, dated February 28, 2020 by and among the Company

and the purchasers signatory thereto.

The February 2020 Private Placement, which was priced above market, resulted in gross proceeds

of $835,000 before fees and other expenses associated with the transaction.

The February 2020 Warrants are

exercisable to purchase up to an aggregate of 45,534 shares of common stock commencing on the date of issuance at an exercise price

of $9.80 per share, subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

The Company will record stock compensation expense

over the four-year vest period.

A summary of activity related

to restricted stock awards for the six months ended June 30, 2020 is presented below:

Weighted-Average

Grant Date Fair Value

Non-vested as of January 1, 2020

Non-vested as of June 30, 2020

As of June 30, 2020, the

unamortized compensation costs related to the unvested restricted stock awards was approximately $648,000 which is to be amortized

on a straight-line basis over a weighted-average period of approximately 2.4 years.

February 2020 Private

On February 28, 2020, the

Company completed a private placement (the “February 2020 Private Placement”) of 91,062 units (the “Units”),

each unit consisting of (i) one (1) share of common stock and (ii) a warrant to purchase 0.50 of a share of common

stock (the “February 2020 Warrants”), at a price per Unit of $9.17.

The Units were issued pursuant to a Unit Purchase

Agreement, dated February 4, 2020, and a subscription agreement, dated February 28, 2020 by and among the Company and

the purchasers’

signatory thereto.

In connection with the February 2020 Private Placement, we paid Alexander Capital,

(“Alexander”) cash fees of $83,000 and issued to Alexander a warrant to purchase 4,553 shares of common stock

(the “February 2020 Alexander Warrant”).

Such warrant is exercisable at a per share price of $8.80 and is exercisable

at any time during the five-year period commencing on the date of issuance.

The February 2020 Private Placement, which was

priced above market, resulted in gross proceeds of $835,000 before fees and other expenses associated with the transaction.

used the net proceeds of approximately $725,000 from the offering for working capital purposes and increasing stockholders’

equity in order to comply with Nasdaq Listing Rule 5550(b) and for general corporate purposes.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity, continued

The February 2020 Warrants

are exercisable to purchase up to an aggregate of 45,534 shares of common stock commencing on the date of issuance at an exercise

price of $9.80 per share, subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

The February 2020

3 unchanged sentences

it to the extent that such exercise would result in such holder being the beneficial owner in excess of 4.99% (or, upon election

of such holder, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company,

provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

of such holder, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided

that any increase in such limitation will not be effective until 61 days following notice to us.

The grant date fair value of

February 2020 Warrants was $103,000, which was recorded within stockholders’

equity as a cost of issuance and an increase

to additional paid-in capital on the accompanying condensed consolidated balance sheet.

The fair value of such warrants was determined

using the Black-Scholes Model based on the following weighted average assumptions:

common stock price on date of grant of $6.00;

expected dividend yield of 0.0%;

expected volatility of 59.0%;

risk-free interest rate of 0.89% and expected life of 5 years.

The fair value of the February 2020

Alexander Warrant at issuance was $11,000.

The fair value of such warrant was estimated using the Black-Scholes Model based on

the following weighted average assumptions:

common share price on date of grant $6.00, expected dividend yield 0%, expected volatility

59%, risk-free interest rate 0.89% and expected life of 5 years.

The fair value was recorded within stockholders’

as a cost of issuance and an increase to additional paid-in capital on the accompanying condensed consolidated balance sheet.

Equity Transactions in the

three months ended June 30, 2020

On April 23, 2020, the

Company closed an underwritten public offering of 1,525,000 shares of its common stock, pre-funded common stock purchase warrants

to purchase up to an aggregate of 475,000 shares of common stock, and common stock purchase warrants to purchase up to an aggregate

of 2,000,000 shares of the Company’s common stock (the “April 2020 Public Offering”).

Each share of common

stock or pre-funded common stock purchase warrant was sold together with one common stock purchase warrant to purchase one share

of common stock at a combined price to the public of $3.25 per share and common stock purchase warrant (or $3.24 per pre-funded

common stock purchase warrant and common stock purchase warrant).

Gross proceeds before deducting underwriting discounts, commissions

and other offering expenses were approximately $6.5 million.

In addition, the Company granted to Maxim a 45-day option to purchase

up to an additional 300,000 shares of common stock and/or common stock purchase warrants to purchase up to an aggregate of 300,000

shares of common stock, at the public offering price, less discounts and commissions, of which Maxim has partially exercised its

option to purchase additional common stock purchase warrants to purchase up to an aggregate of 229,100 shares of common stock.

Each common stock purchase warrant is immediately exercisable for one share of common stock at an exercise price of $3.25 per share

and will expire five years from issuance.

The Company also issued a warrant to Maxim to purchase up to 100,000 shares of common

stock in connection with the April 2020 Public Offering (the “April 2020 Maxim Warrant”).

Such warrant has

an exercise price of $3.90 per share and is fully vested but not exercisable until October 18, 2020.

On May 14, 2020, we entered

into a settlement agreement with Alexander (the “Alexander Settlement Agreement”), pursuant to which, in consideration

for Alexander releasing us from all claims against us arising out of that certain engagement agreement, dated February 6,

2020, that we entered into with Alexander (the “Alexander Engagement Agreement”), other than indemnification for certain

third-party claims, we agreed to (i) pay Alexander a one-time cash payment of $125,000 and (ii) issue to Alexander 50,000

shares of our common stock (the “Alexander Settlement Shares”) which had a value of approximately $111,000.

released Alexander from the same type of claims against Alexander, other than indemnification for certain third-party claims.

connection with the Alexander Settlement Agreement, on May 14, 2020, we also entered into a leak-out agreement with Alexander

(the “Alexander Leak-Out Agreement”), pursuant to which Alexander shall not dispose of more than 5,000 shares of common

stock in any trading day, commencing on the date of such agreement and ending on the date on which Alexander no longer holds any

Alexander Settlement Shares.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity (Deficit), continued

Warrants for Common

Equity, continued

On May 18, 2020, we registered

for resale, pursuant to a prospectus supplement to our shelf registration statement, an aggregate of 60,250 shares of common stock,

50,000 of which shares were the Alexander Settlement Shares, and the remaining 10,250 of such shares which were issued to one

of the Company’s vendors pursuant to the Settlement Letter, dated May 12, 2020, by and between us and such vendor.

On June 4, 2020, we entered

into a securities purchase agreement (the “June 4 th Purchase Agreement”) with several accredited investors

providing for the issuance of (i) 2,275,000 shares of the Company’s common stock and (ii) warrants, with a term

of 5.5 years, to purchase an aggregate of up to 2,275,000 shares of common stock at an exercise price of $2.55 per share, subject

to customary adjustments thereunder, which warrants were immediately exercisable upon issuance and on a cashless basis if such

warrants have not been registered on or before six months after the date of issuance.

Pursuant to the June 4 th

Purchase Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $5,801,000.

to the June 4 th Purchase Agreement, an aggregate of 2,275,000 shares of common stock were issued to the investors

in a registered direct offering pursuant to a prospectus supplement to the Company’s currently effective registration statement

on Form S-3, which was declared effective on September 6, 2019.

The Company filed the prospectus supplement on June 5,

Maxim acted as the placement agent.

The warrants were issued to the investors in a concurrent private placement transaction

pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the

Securities Act and/or Regulation D promulgated thereunder.

The Company paid Maxim a fee of approximately $464,000, which was equal

to 8% of the aggregate purchase price paid by investors placed by Maxim and certain expenses.

The June 4 th Purchase

Agreement contains customary representations, warranties and agreements of the Company and the investors and customary indemnification

rights and obligations of the parties thereto.

The offering of the securities pursuant to the June 4 th Purchase

Agreement was closed on June 8, 2020.

The Company will use the net proceeds from this Offering for working capital, capital

expenditures, product development, and other general corporate purposes, including investments in sales and marketing in the United

States and internationally.

On June 9, 2020, we entered

into a securities purchase agreement (the “June 9 th Purchase Agreement”) with several accredited investors

providing for the issuance of (i) 2,040,000 shares of the Company’s common stock and (ii) warrants, with a term

of 5.5 years, to purchase an aggregate of up to 2,040,000 shares of common stock at an exercise price of $2.61 per share, subject

to customary adjustments thereunder, which warrants were immediately exercisable upon issuance and on a cashless basis if the Warrants

have not been registered on or before six months after the date of issuance.

Pursuant to the June 9 th Purchase

Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $5,324,000.

the June 9 th Purchase Agreement, an aggregate of 2,040,000 shares of common stock were issued to the investors

in a registered direct offering, pursuant to a prospectus supplement to the Company’s currently effective registration statement

on Form S-3, which was declared effective on September 6, 2019.

The Company filed the prospectus supplement on June 10,

Maxim acted as the placement agent.

The warrants were issued to the investors in a concurrent private placement transaction

pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the

Securities Act and/or Regulation D promulgated thereunder.

The Company paid Maxim a fee of approximately $426,000, which was equal

to 8% of the aggregate purchase price paid by investors placed by Maxim and certain expenses.

The June 9 th Purchase

Agreement contains customary representations, warranties and agreements of the Company and the investors and customary indemnification

rights and obligations of the parties thereto.

The offering of the securities pursuant to the June 9 th Purchase

Agreement was closed on June 11, 2020.

The Company will use the net proceeds from this Offering for working capital, capital

expenditures, product development, and other general corporate purposes, including investments in sales and marketing in the United

States and internationally.

Warrants for Shares

of Common Stock

The Company has issued warrants

to purchase common shares to employees and consultants as compensation for services rendered, as well as in conjunction with the

purchase of common shares in equity and debt transactions.

to purchase shares of common stock to employees and consultants as compensation for services rendered, as well as in conjunction

with the purchase of shares of common stock in equity and debt transactions.

During the three months ended

June 30, 2020, as described in more detail just below, the Company issued the following warrants on the dates as noted below.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity, continued

In connection with the March 2020

Note, the Company issued the March 2020 Note to the investor and the March 2020 Maxim Warrant to Maxim to purchase shares

of common stock of 227,679 and 20,400, respectively (see Note 4 –

Borrowings) at an exercise price of $6.40.

The grant date

fair value of such warrants was $625,000, which was recorded as debt discount with the offset recorded to additional paid-in capital

on the condensed consolidated balance sheets.

The fair value of such warrants was determined using the Black-Scholes Model based

on the following weighted average assumptions:

common stock price on date of grant of $5.40;

expected dividend yield of 0.0%;

volatility of 61.0%;

risk-free interest rate of 0.38% and expected life of 5 years.

Such warrant issued to the investor

contained an adjustment provision such that if the Company issues or sells any shares of common stock or common stock equivalents

(as defined in the March 2020 Note), subject to certain exceptions, at an effective price lower than the conversion price,

then in effect, the conversion price shall be reduced to the price per share paid for such shares of common stock or common stock

The common stock and common stock equivalents issued by the Company in the April 2020 Public Offering were issued

at price per share of $3.25, which was lower than the conversion price then in effect.

Additionally, the Alexander Settlement Shares,

issued to Alexander under the Alexander Settlement Agreement, on May 14, 2020, were issued at a price per share which was

lower than the conversion price then in effect.

The Company modified the exercise price of the March 2020 Warrant as a result

of each of these transactions and calculated the incremental fair value related to these modifications.

The resulting deemed dividend

from these down round adjustments was $134,000, and this is included as an offset to additional paid-in capital in the accompanying

condensed consolidated balance sheets.

Concurrent with the April 2020

Public Offering, the Company issued prefunded warrants of $475,000 at an exercise price of $0.01 per share.

These warrants were

exercised immediately upon the closing of the transactions for proceeds of $4,750 and the investors received 475,000 shares of

common stock.

Additionally, as a result of

the April 2020 Public Offering, the Company issued warrants to purchase shares of common stock to the common stock investors,

prefunded warrants investors, and Maxim of 1,525,000, 475,000 and 291,000, respectively.

The warrants have an exercise price of

$3.25 per share and are fully vested.

The grant date fair value of those warrants was $2,606,000, which was recorded within stockholders’

equity as a cost of issuance and an increase to additional paid-in capital on the accompanying condensed consolidated balance sheet.

The fair value of the warrants was determined using the Black-Scholes Model based on the following weighted average assumptions:

common stock price on date of grant of $2.50;

expected dividend yield of 0.0%;

expected volatility of 64.0%;

risk-free interest

rate of 0.37% and expected life of 5 years.

The Company also issued the

April 2020 Maxim Warrant to purchase up to 100,000 shares of common stock to Maxim in connection with the April 2020

Public Offering.

Such warrant has an exercise price of $3.90 per share and is fully vested but not exercisable until October 18,

The fair value of such warrant at issuance was $106,000.

The fair value of the warrant was estimated using the Black-Scholes

Model based on the following weighted average assumptions:

common share price on date of grant $2.50, expected dividend yield 0%,

expected volatility 64%, risk-free interest rate 0.37% and expected life of 5 years.

The fair value was recorded within stockholders’

equity as a cost of issuance and an increase to additional paid-in capital on the accompanying condensed consolidated balance sheet.

In connection with the offering

pursuant to the June 4 th Purchase Agreement, the Company issued the June 4 th Warrants to the investors

to purchase up to an aggregate of 2,275,000 shares of common stock.

Such warrants have an exercise price of $2.55 per share and

are fully vested.

The grant date fair value of those warrants was $3,153,000, which was recorded within stockholders’

as a cost of issuance and an increase to additional paid-in capital on the accompanying condensed consolidated balance sheet.

fair value of such warrants was determined using the Black-Scholes Model based on the following weighted average assumptions:

stock price on date of grant of $2.52;

expected dividend yield of 0.0%;

expected volatility of 64.0%;

risk-free interest rate of

0.45% and expected life of 5.5 years.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Six Months Ended June 30,

2020 and 2019

Convertible Preferred Stock and Stockholders’

Equity, continued

In connection with the offering

pursuant to the June 8 th Purchase Agreement, the Company issued the June 8 th Warrants to the investors

to purchase up to an aggregate of 2,040,000 shares of common stock.

Such warrants have an exercise price of $2.61 per share and

are fully vested.

The grant date fair value of those warrants was $2,375,000, which was recorded within stockholders’

as a cost of issuance and an increase to additional paid-in capital on the accompanying condensed consolidated balance sheet.

fair value of such warrants was determined using the Black-Scholes Model based on the following weighted average assumptions:

stock price on date of grant of $2.25;

expected dividend yield of 0.0%;

expected volatility of 64.0%;

risk-free interest rate of

0.32% and expected life of 5.5 years.

Information regarding warrants

for common stock outstanding and exercisable as of March 31, 2020 is as follows:

for common stock outstanding and exercisable as of June 30, 2020 is as follows:

Outstanding as of

Exercisable as of

March 31, 2020

June 30, 2020

$2.32 - $3.90

2 unchanged sentences

$24.80 - $99.00

Warrants exercisable as of March

31, 2020 excludes warrants to purchase 9,864 common shares issued to Alexander Capital L.P., which are fully vested, but are exercisable

in the amounts of 6,114 and 3,750 after May 21, 2020 and October 16, 2020, respectively, and 20,400 common shares issued to Maxim

Group LLC, which are fully vested, but are exercisable after September 19, 2020.

Additionally, warrants to purchase 20,722 common

shares which are shown above with a price of $15.80 are Pre-Funded Warrants under which the holder must only pay $0.20 per share

to complete the exercise.

$108 - $207.00

Warrants exercisable as of June 30,

2020 excludes warrants to purchase 3,750 shares of common stock issued to Alexander, which are fully vested, but are exercisable

after October 16, 2020, and 120,400 shares of common stock issued to Maxim, which are fully vested, but are exercisable in

the amounts of 20,400 and 100,000 shares, after September 19, 2020 and October 18, 2020, respectively.

Additionally,

warrants to purchase 20,722 shares of common stock which are shown above with a price of $15.80 are Pre-Funded Warrants under which

the holder must only pay $0.20 per share to complete the exercise.

The Company recorded a provision

for income taxes of $0 for the three months ended March 31, 2020 and $6,000 for the three months

ended March 31, 2019.

The provision for income taxes recorded for the three months ended 2019 was primarily due to state income

for income taxes of $3,000 for the six months ended June 30, 2020 and $7,000 for the six months

ended June 30, 2019.

The provision for income taxes recorded for the six months ended June 30, 2019 was primarily

due to state income tax expense.

The Company’s effective

tax rate was 0.0% for the three months ended March 31, 2020 and (0.2)% for the three months ended March

The difference between the effective tax rate and the federal statutory tax rate for the three months ended March

tax rate was (0.05)% for the six months ended June 30, 2020 and was (0.13)% for the six months ended June 30,

The difference between the effective tax rate and the federal statutory tax rate for the six months ended June 30,

2020 and 2019 primarily relates to the valuation allowance on the Company’s deferred tax assets.

5 unchanged sentences

tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2020 and

December 31, 2019, the Company retains a full valuation allowance on its deferred tax assets.

As of June 30, 2020

and December 31, 2019, the Company retains a full valuation allowance on its deferred tax assets.

The realization of the Company’s

3 unchanged sentences

future taxable income.

The provision for income taxes for the three

months ended March 31, 2020 and 2019 was calculated on a jurisdiction basis.

The provision for income taxes for the six months

ended June 30, 2020 and 2019 was calculated on a jurisdiction basis.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Income Taxes , continued

On March 27, 2020, the Coronavirus

Aid, Relief and Economic Security (“CARES”) Act was signed into law.

The CARES Act includes provisions relating to

refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods,

alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax

depreciation methods for qualified improvement property.

The Company is currently analyzing the impact of these changes and therefore

an estimate of the impact to income taxes is not yet available.

On March 27, 2020, the

Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law.

The CARES Act includes provisions

relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback

periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections

to tax depreciation methods for qualified improvement property.

The Company analyzed the provisions of the CARES Act and determined

there was no effect on its provision for the current period and will continue to evaluate the impact, if any, the CARES Act may

have on the Company’s condensed consolidated financial statements and disclosures.

Commitments and Contingencies

2 unchanged sentences

Oregon office under an operating lease, which was set to expire in October 2018.

In July 2018, the Company extended its lease through

October 31, 2020.

Under the terms of the lease, the Company is responsible for taxes, insurance and maintenance expense.

recognizes rent expense on a straight-line basis over the lease period.

Rent expense for the three months ended March 31, 2020

In July 2018, the Company extended its

lease through October 31, 2020.

Under the terms of the lease, the Company is responsible for taxes, insurance and maintenance

The Company recognizes rent expense on a straight-line basis over the lease period.

Rent expense for the three months

ended June 30, 2020 and 2019 was $86,000 and $99,000, respectively.

Rent expense for the six months ended June 30, 2020

and 2019 was $201,000 and $189,000, respectively.

Future annual minimum lease

payments under the non-cancelable operating lease as of March 31, 2020 are $213,000 for the year ending December 31, 2020.

Future annual minimum lease payments under the non-cancelable operating lease

as of June 30, 2020 is $121,000 for the year ending December 31, 2020.

Contingencies

10 unchanged sentences

On April 3, 2020, we received

a letter (the “April 3 rd Alexander Counsel Letter”) from counsel for Alexander Capital, L.P.

(“Alexander”)

, alleging that we were in apparent breach of a certain engagement agreement, dated February 6, 2020, that we entered into with

Alexander (the “Engagement Agreement”), which appointed Alexander as our exclusive placement agent and financial advisor,

due to our consummation of the March 2020 Private Placement, in which Maxim acted as placement agent.

Such letter also claimed

that due to such alleged breach, and in accordance with the terms of the Engagement Agreement, we owed Alexander an aggregate of

$170,000 and warrants to purchase up to 22,768 shares of common stock in connection with the March 2020 Private Placement.

April 3 rd Alexander Counsel Letter further stated that Alexander would be willing to forego any claim to the issuance

of warrants to it and to settle the dispute in consideration of our payment of $170,000 (the “Alexander Settlement Offer”).

a letter (the “April 3 rd Alexander Counsel Letter”) from counsel for Alexander alleging that we

were in apparent breach of the Alexander Engagement Agreement, which appointed Alexander as our exclusive placement agent and financial

advisor, due to our consummation of the March 2020 Private Placement, in which Maxim acted as placement agent.

also claimed that due to such alleged breach, and in accordance with the terms of the Alexander Engagement Agreement, we owed Alexander

an aggregate of $170,000 and warrants to purchase up to 22,768 shares of common stock in connection with the March 2020 Private

The April 3 rd Alexander Counsel Letter further stated that Alexander would be willing to forego

any claim to the issuance of warrants to it and to settle the dispute in consideration of our payment of $170,000 (the “Alexander

Settlement Offer”).

By letter dated April 7,

2020, we responded to the April 3 rd Alexander Counsel Letter and disputed Alexander’s claims.

On April 10, 2020,

we received a second letter (the “April 10 th Alexander Counsel Letter”), from Alexander’s counsel,

responding to our April 7 th letter and which disputed all of our arguments relating to the termination of the

Engagement Agreement;

2020, we received a second letter (the “April 10 th Alexander Counsel Letter”), from Alexander’s

counsel, responding to our April 7 th letter and which disputed all of our arguments relating to the termination

of the Alexander Engagement Agreement;

(ii) appeared to withdraw the Alexander Settlement Offer;

and (iii) referred to the engagement of Maxim

as underwriter in connection with the April 2020 Offering, claimed that such engagement is a further breach of the Engagement

Agreement and states that Alexander believes that it would be entitled to seek further damages for breach.

Additionally, there

is language in the April 10 th Alexander Counsel Letter stating that if we had engaged Maxim prior to closing a

financing on February 28, 2020 in which Alexander was placement agent, without disclosing our prior engagement of Maxim to investors

in that financing, that this would raise additional issues.

Finally, Alexander demanded that we cease the April 2020 Offering

immediately and that if we proceed with such offering, it will seek to be compensated as if it had acted as underwriter in such

On April 16, 2020, we received a third letter from Alexander’s counsel that Alexander intends to file an action

in connection with such claims.

and (iii) referred to

the engagement of Maxim as underwriter in connection with the April 2020 Public Offering, claimed that such engagement is

a further breach of the Alexander Engagement Agreement and states that Alexander believes that it would be entitled to seek further

damages for breach.

Additionally, there was language in the April 10 th Alexander Counsel Letter stating that

if we had engaged Maxim prior to closing a financing on February 28, 2020 in which Alexander was placement agent, without

disclosing our prior engagement of Maxim to investors in that financing, that this would raise additional issues.

Finally, Alexander

demanded that we cease the April 2020 Public Offering immediately and that if we proceeded with such offering, it would seek

to be compensated as if it had acted as underwriter in such offering.

On April 16, 2020, we received a third letter from Alexander’s

counsel that Alexander intended to file an action in connection with such claims.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

and Contingencies, continued

In connection with Alexander’s

threatened litigation which was triggered as a result of the March 2020 Private Placement, the Company recorded a contingency reserve

of $250,000 in the three months ended March 31, 2020.

See Note 11, Subsequent Events for more details.

Excluding Alexander’s

threatened litigation, the Company’s management does not believe that any such matters, individually or in the aggregate,

will have a materially adverse effect on the Company’s condensed consolidated financial statements.

For the Six Months Ended June 30,

2020 and 2019

Commitments and Contingencies, continued

On May 14, 2020, we entered

into the Alexander Settlement Agreement.

See Note 1 –

Business and Viability of Operations - for a description of the Alexander

Upon signing the Alexander Settlement

Agreement, the Company recorded a charge of $236,000 to general and administrative expense in the six months ended in June 30,

The Company’s management

does not believe that any such matters, individually or in the aggregate, will have a materially adverse effect on the Company’s

condensed consolidated financial statements.

Related Parties

Moyer has served as the

Company’s President, Chief Executive Officer and member of the board of directors since the Company’s founding in August

On October 7, 2019, Mr.

entered into a Warrant Amendment Agreement with the Company.

Moyer exercised Original Warrants for a total of 453 shares of

common stock and the Company received proceeds of $7,246.

On November 3, 2019, Mr.

Moyer entered into a Settlement Agreement with

the Company, pursuant to which the Company issued Mr.

Moyer 65 additional shares of common stock.

As of March 31, 2020 and December

31, 2019, Mr.

Moyer owned 1.8% and 1.9% of the outstanding shares of the Company’s common stock, respectively.

Williams has served as the

Company’s Chief Accounting Officer since September 2019, as the Company’s VP of Finance since August 2010 and previously

served as the Company’s Chief Financial Officer from August 2010 to September 2019.

On October 7, 2019, Mr.

entered into a Warrant Amendment Agreement with the Company.

Williams exercised Original Warrants for a total of 179 shares

of common stock and the Company received proceeds of $2,862.

On November 3, 2019, Mr.

Williams entered in a Settlement Agreement

with the Company, pursuant to which the Company issued Mr.

Williams 26 additional shares of common stock.

As of March 31, 2020

and December 31, 2019, Mr.

Williams owned less than 1.0% of the outstanding shares of the Company’s common stock.

Jonathan Gazdak

Gazdak is Managing Director

Head of Investment Banking for Alexander Capital, L.P., an investment banking firm based in New York.

Gazdak is Managing

Director –

Head of Investment Banking for Alexander, an investment banking firm based in New York.

Gazdak has been

a member of the board of directors since June 2015.

Alexander Capital, L.P.

has acted as the lead investment bank in a number of

the Company’s private financings and as an underwriter for the Company’s IPO.

As of March 31, 2020 and December 31,

Gazdak owned less than 1% of the outstanding shares of the Company’s common stock.

Alexander has acted as the lead investment bank in a number of the Company’s

private financings and as an underwriter for the Company’s IPO.

As of June 30, 2020 and December 31, 2019, Mr.

owned less than 1% of the outstanding shares of the Company’s common stock.

On October 7, 2019, Mr.

entered into a Warrant Amendment Agreement with the Company.

Gazdak exercised Original Warrants for a total of 157 shares of

common stock and the Company received proceeds of $2,510.

Gazdak exercised original warrants for a total of 157 shares

of common stock and the Company received proceeds of $2,510.

On November 6, 2019, Mr.

Gazdak entered into a Settlement Agreement with

the Company, pursuant to which the Company issued Mr.

Gazdak entered into a Settlement

Agreement with the Company, pursuant to which the Company issued Mr.

Gazdak 23 additional shares of common stock.

In connection with the Company’s

entry in the Warrant Amendment Agreements, Alexander Capital, L.P.

was paid a cash fee of $51,374.

In connection

with the Company’s entry in the Warrant Amendment Agreements, Alexander was paid a cash fee of $51,374.

On April 4, 2019, the Company

signed another engagement letter with Alexander, pursuant to which Alexander earned a fee of $80,000, in connection with the Company’s

issuance of the initial tranche of the Series A Preferred Stock, and the Company agreed to issue Alexander a warrant to purchase

2,041 shares of common stock.

Such warrant is exercisable at a per share price of $43.60 and is exercisable at any time during

the five-year period commencing 180 days from the effective date of the issuance of such common stock, which period shall not exceed

five years from such effective date.

On April 17, 2019, the

Company entered into an underwriting agreement with Alexander in connection with an offering by the Company of 203,787 shares of

common stock, pursuant to which Alexander was paid cash fees of $406,554 as well as a non-accountable expense allowance of $54,207

and reimbursements of $100,000 and pursuant to which the Company issued to Alexander a warrant to purchase up to 6,114 shares of

common stock.

Such warrant is exercisable at a per share price of $33.20 and is exercisable at any time during the five-year period

commencing 180 days from the effective date of the issuance of such common stock, which period shall not exceed five years from

such effective date.

On October 16, 2019, the

Company entered into another underwriting agreement with Alexander, in connection with an offering by the Company of up to an aggregate

of 125,000 shares of common stock, pursuant to which Alexander was paid cash fees of $131,250 as well as a non-accountable expense

allowance of $17,500 and reimbursements of $43,750 and pursuant to which the Company issued a warrant to Alexander to purchase

up to 3,750 shares of common stock.

Such warrant is exercisable at a per share price of $17.50 and is exercisable at any time during

the five-year period commencing one year from the effective date of the issuance of such stock, which period shall not exceed five

years from such effective date.

On February 6, 2020, the

Company entered into another placement agency agreement with Alexander Capital, in connection with an offering by the Company of

up to an aggregate of $835,000 of the Company’s securities, pursuant to which Alexander was paid cash fees of $83,000 and

pursuant to which the Company issued to Alexander a warrant to purchase up to 4,553 shares of common stock.

Such warrant is exercisable

at a per share price of $8.80 and is exercisable at any time during the five-year period commencing on the date of issuance.

The Company also entered into

the Alexander Settlement Agreement with Alexander on May 14, 2020.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30,

2020 and 2019

Related Parties, continued

On April 4, 2019, the Company

signed another engagement letter with Alexander Capital, L.P.

under which Alexander Capital, L.P.

earns a fee on total investments

by its clients.

In connection with the issuance of the initial tranche of the Series A Preferred Stock, Alexander Capital, L.P.

earned a fee of $80,000 and the Company agreed to issue it a warrant to purchase 2,041 shares of common stock.

Such warrant is

exercisable at a per share price of $43.60 and is exercisable at any time during the five-year period commencing 180 days from

the effective date of the issuance of such common stock, which period shall not exceed five years from such effective date.

On April 17, 2019, the Company

entered into an underwriting agreement with Alexander Capital, L.P.

in connection with an offering by the Company of 203,787 shares

of common stock, pursuant to which Alexander Capital, L.P.

was paid cash fees of $406,554 as well as a non-accountable expense

allowance of $54,207 and reimbursements of $100,000 and pursuant to which the Company agreed to issue a warrant to purchase 6,114

shares of common stock.

Such warrant is exercisable at a per share price of $33.20 and is exercisable at any time during the five-year

period commencing 180 days from the effective date of the issuance of such common stock, which period shall not exceed five years

from such effective date.

On October 16, 2019, the Company

entered into another underwriting agreement with Alexander Capital, L.P.

in connection with an offering by the Company of up to

an aggregate of 125,000 shares of common stock, pursuant to which Alexander Capital, L.P.

was paid cash fees of $131,250 as well

as a non-accountable expense allowance of $17,500 and reimbursements of $43,750 and pursuant to which the Company agreed to issue

a warrant to purchase 3,750 shares of common stock.

Such warrant is exercisable at a per share price of $17.50 and is exercisable

at any time during the five-year period commencing one year from the effective date of the issuance of such stock, which period

shall not exceed five years from such effective date.

On February 6, 2020, the Company

entered into another placement agency agreement with Alexander Capital, L.P.

in connection with an offering by the Company of up

to an aggregate of $835,000 of the Company’s securities, pursuant to which Alexander Capital, L.P.

was paid cash fees of

$83,000 and pursuant to which the Company agreed to issue to Alexander Capital, L.P.

a warrant to purchase 4,553 shares of common

Such warrant is exercisable at a per share price of $8.80 and is exercisable at any time during the five-year period commencing

on the date of issuance.

Herr is Chief Investment

1 unchanged sentence

Funds), serves as a partner and co-portfolio manager for each of the Medalist Partners Harvest Master Fund, Ltd.

and Medalist Partners

Opportunity Master Fund A, LP (collectively, the “Medalist Funds”), and is a former director of the Company who resigned

from the board of directors effective February 10, 2020.

On October 8, 2019, each of

the Medalist Funds entered into a Warrant Amendment Agreement with the Company.

In connection with and prior to the Warrant Amendment

Agreement that each of the Medalist Funds entered into, the Company also executed Amendment No.

1 to the Series F Warrants held

by each of the Medalist Funds (the “Series F Warrant Amendment”), pursuant to which each such Series F Warrant was

further amended to add, among other things, fundamental transaction and subsequent rights offerings provisions as well as a 9.99%

beneficial ownership limitation (the “Beneficial Ownership Limitation”).

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Related Parties, continued

Partners Opportunity Master Fund A, LP (collectively, the “Medalist Funds”), and is a former director of the Company

who resigned from the board of directors effective February 10, 2020.

On October 8, 2019, each

of the Medalist Funds entered into a Warrant Amendment Agreement with the Company.

In connection with and prior to the Warrant

Amendment Agreement that each of the Medalist Funds entered into, the Company also executed Amendment No.

1 to the Series F

Warrants held by each of the Medalist Funds (the “Series F Warrant Amendment”), pursuant to which each such Series F

Warrant was further amended to add, among other things, fundamental transaction and subsequent rights offerings provisions as well

as a 9.99% beneficial ownership limitation (the “Beneficial Ownership Limitation”).

Pursuant to Warrant Amendment

Agreements that were entered into with each of the Medalist Funds, with respect to the Series F Warrants and Series G Warrants,

if the exercise of an Original Warrant at the Reduced Exercise Price would cause each of the Medalist Funds to exceed the Beneficial

Ownership Limitation, in lieu of receiving such number of shares of common stock in excess of the Beneficial Ownership Limitation,

the Company will only issue such number of shares of common stock to each of the Medalist Funds as would not cause each of the

Medalist Funds to exceed the maximum number of shares of common stock permitted under the Beneficial Ownership Limitation, and

each of the Medalist Funds shall be issued, at an exercise price equal to the Reduced Exercise Price less $15.80 per share, pre-funded

common stock purchase warrants covering such number of shares of common stock as would otherwise have been in excess of the Beneficial

Ownership Limitation (the “Pre-Funded Warrants”).

In connection with such exercises, the Medalist Funds were issued

Pre-Funded Warrants to purchase an aggregate of 20,719 shares of common stock.

The Company received aggregate gross proceeds of

approximately $327,000 in connection with the Pre-Funded Warrants.

On November 4, 2019, the Company

entered into a Settlement Agreement with the Medalist Funds, pursuant to which the Company agreed to pay the Medalist Funds an

aggregate of $47,223 in cash, with such cash meant to compensate the Medalist Funds for the difference between the Amended Exercise

Price and the lower priced shares of common stock that were offered to investors in connection with the Company’s October

2019 registered direct offering pursuant to which it issued 125,000 shares of common stock to certain institutional investors at

an offering price of $14.00 per share (the “Registered Direct Offering”).

In addition, pursuant to the Settlement Agreement,

the Company and the Medalist Funds agreed to extend the date by which the Company would file a registration statement on Form S-3

to register all of the Resale Shares from November 4, 2019 to November 18, 2019.

Agreements that were entered into with each of the Medalist Funds, with respect to the Series F Warrants and Series G

Warrants, if the exercise of an original warrant at the Reduced Exercise Price (as such term is defined in the Warrant Amendment

Agreements) would cause each of the Medalist Funds to exceed the Beneficial Ownership Limitation, in lieu of receiving such number

of shares of common stock in excess of the Beneficial Ownership Limitation, the Company will only issue such number of shares of

common stock to each of the Medalist Funds as would not cause each of the Medalist Funds to exceed the maximum number of shares

of common stock permitted under the Beneficial Ownership Limitation, and each of the Medalist Funds shall be issued, at an exercise

price equal to the Reduced Exercise Price less $15.80 per share, pre-funded common stock purchase warrants covering such number

of shares of common stock as would otherwise have been in excess of the Beneficial Ownership Limitation.

In connection with such

exercises, the Medalist Funds were issued pre-funded common stock purchase warrants to purchase an aggregate of 20,719 shares of

common stock.

The Company received aggregate gross proceeds of approximately $327,000 in connection with the purchase of such pre-funded

common stock purchase warrants.

On November 4, 2019, the

Company entered into a Settlement Agreement with the Medalist Funds, pursuant to which the Company agreed to pay the Medalist Funds

an aggregate of $47,223, in cash, in order to compensate the Medalist Funds for the difference between the Amended Exercise Price

(as such term is defined in such Settlement Agreement) and the lower priced shares of common stock that were offered to investors

in connection with the Company’s October 2019 registered direct offering pursuant to which it issued 125,000 shares

of common stock to certain institutional investors at an offering price of $14.00 per share.

In addition, pursuant to such Settlement

Agreement, the Company and the Medalist Funds agreed to extend the date by which the Company would file a registration statement

on Form S-3 to register all of the Resale Shares from November 4, 2019 to November 18, 2019.

On February 6, 2020, Mr.

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resigned to focus on managing the Medalist Funds and not due to any disagreement between the Company and Mr.

Herr, or any matter

related to the Company’s operations, policies or practices.

As of March 31, 2020 and December 31, 2019, the Medalist Funds

owned 7.6% and 8.3% of the outstanding shares of the Company’s common stock, respectively.

Michael Howse

The Company is party to an agreement

with Michael Howse, dated April 6, 2018, as amended effective as of December 27, 2018 (the “Howse Agreement”), pursuant

Howse was appointed interim role as chief strategy officer on an “at-will”

basis in consideration for

a monthly cash salary as well as (i) a warrant to purchase 5,500 shares of our common stock, exercisable at a per share price of

$40.00 and which vested monthly over a nine-month period and which fully vested on January 6, 2019 and (ii) a warrant to purchase

8,250 shares of our common stock, exercisable at a per share price of $40.00, which shall vest, so long as Mr.

Howse continues

to serve as interim chief strategy officer and/or as a member of our board of directors, (x) as to 5,500 shares of common stock

upon the achievement of a significant milestone and (y) as to 2,750 shares of common stock upon the achievement of an additional

significant milestone.

The foregoing exercise prices are subject to adjustment as provided in each warrant.

Pursuant to the Howse

Agreement, such warrants shall fully vest on the earlier of (1) immediately prior to a Fundamental Transaction, as defined in such

agreement, (2) Mr.

Howse’s removal from our board of directors for any reason other than his resignation, his intentional

illegal conduct or gross misconduct, or his conviction for any felony, theft, embezzlement or violent crime.

In addition, pursuant

to the Howse Agreement, we also agreed to appoint Mr.

Howse to our board of directors, where he may only be removed for cause,

or his termination or resignation.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Related Parties, continued

Under the Howse Agreement, if

the Company raises capital in one or more financings from certain pre-approved strategic investors, or is acquired by a third-party

during the period that Mr.

Howse serves as interim chief strategy officer (or within six months thereafter), he will receive a

percentage cash bonus concurrently with the closing of such transaction based on the amount raised or consideration paid for the

Company, as applicable, (A) which bonus doubles in the event that the Company does not incur an amount equal to 2% or more of the

Consideration (as defined in the Howse Agreement) in fees to any investment bank in connection with such transaction, if such transaction

is a Fundamental Transaction (such fees, “General Expenses”), and (B) 50% of which bonus may be paid as a convertible

note or preferred equity with the same terms as the other participants in such transaction, if such transaction is a financing.

Pursuant to the Howse Agreement, we may terminate Mr.

Howse at any time, with or without cause, upon 90 days’

prior written

Such agreement provides for Company-sponsored benefits in accordance with our policies.

Pursuant to the Howse Agreement,

effective November 1, 2018, Mr.

Howse was placed on our payroll and is now considered a part-time Company employee.

In connection with the Howse

Agreement, the Company is also party to the Deferred Shares Agreement, pursuant to which the Company granted Mr.

Howse up to 20,000

Deferred Shares under the LTIP.

Pursuant to such agreement, if a Fundamental Transaction has not occurred within 180 days of the

earlier of the date on which Mr.

Howse no longer serves (i) as our interim chief strategy officer or (ii) on our board of directors,

all of the Deferred Shares shall be forfeited and Mr.

Howse will have no further rights to such shares.

Pursuant to such agreement,

the Deferred Shares shall vest immediately prior to a Fundamental Transaction, and the number of Deferred Shares that shall vest

is based on the Consideration paid for the Company in such transaction, which number of Deferred Shares that shall vest to double

in the event that the Company does not incur General Expenses.

As of March 31, 2020, Mr.

Howse has vested warrants to purchase

13,750 shares of common stock and owns 0% of the outstanding shares of the Company’s common stock.

matter related to the Company’s operations, policies or practices.

As of June 30, 2020 the Medalist Funds owned less

than 5% of the outstanding shares of the Company’s common stock.

As of December 31, 2019, the Medalist Funds owned 8.3%

of the outstanding shares of the Company’s common stock.

Helge Kristensen

Kristensen has served as

a member of the Company’s board of directors since 2010.

Kristensen serves as vice president of Hansong Technology, an

original device manufacturer of audio products based in China, president of Platin Gate Technology (Nanjing) Co.

Kristensen has served

as a member of the Company’s board of directors since 2010.

Kristensen serves as vice president of Hansong Technology,

an original device manufacturer of audio products based in China, president of Platin Gate Technology (Nanjing) Co.

Ltd, a company

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Inizio Capital, an investment company based in the Cayman Islands.

In August 2019, we issued a

$360,000 purchase order to Hansong Technology.

Pursuant to such purchase order, we will pay $360,000 to Hansong Technology for

the purchase of certain products.

Additionally, Hansong Technology purchased $63,523 of our modules pursuant to purchase orders

issued in 2019, with $22,923 received by us in 2019 and the remaining amount expected to be received in 2020.

As of March 31, 2020

and December 31, 2019, Mr.

Kristensen and affiliates owned less than 1.0% of the outstanding shares of the Company’s common

For the three and six months

ended June 30, 2020 and 2019, Hansong Technology purchased modules from the Company of approximately $18,000 and $3,000, respectively,

and made payments to the Company of approximately $1,000 and $6,000, respectively.

For the three months ended June 30, 2020 and

2019, Hansong Technology sold speaker products to the Company of approximately $29,000 and $4,000, respectively, and the Company

made payments to Hansong Technology of approximately $0 and $4,000, respectively.

For the six months ended June 30, 2020 and 2019,

Hansong Technology sold speaker products to the Company of approximately $29,000 and $36,000, respectively, and the Company made

payments to Hansong Technology of approximately $0 and $4,000, respectively.

As of June 30, 2020 and December 31, 2019,

Kristensen and affiliates owned less than 1.0% of the outstanding shares of the Company’s common stock.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Related Parties, continued

Significant Shareholders

On April 18, 2019, the Company

entered into a Securities Purchase Agreement, dated as of April 18, 2019, with Ms.

Walsh (the “Preferred SPA”), pursuant

to which the Company issued 250,000 shares of its Series A 8% Senior Convertible Preferred Stock, par value $0.0001 per share (the

“Series A Preferred Stock”), which shares have a stated value of $4.00, grant holders the same voting rights as holders

of our shares of common stock, and are convertible into shares of common stock at a price of $80.00 per share, which price cannot

be reduced below $30.00, and which is subject to adjustment under the Certificate of Designations of the Preferences, Rights and

Limitations of the Series A Preferred Stock upon certain subsequent transactions and events described therein, in consideration

for $1,000,000 (the “Initial Tranche”).

The Series A Preferred Stock may be issued in tranches of at least $500,000

and in an aggregate of up to $5,000,000.

In connection with the Initial Tranche, the Company also issued to Ms.

Walsh a warrant

to purchase 12,756 shares of common stock, which is immediately exercisable, has a five-year life, has an exercise price of $39.60

and is subject to 4.99/9.99% blockers and to adjustment for stock dividends and splits.

Pursuant to the Preferred SPA, holders

of shares of the Series A Preferred Stock (i) have the right to require the Company to register the shares of Series A Preferred

Stock as well as the shares of common stock underlying such shares and the warrant issued to Ms.

Walsh within 180 days of the Closing

Date (as defined in the Preferred SPA) on which purchasers have committed to purchase an aggregate of amount of Series A Preferred

Stock with an aggregate stated value equal to or exceeding $1,000,000.

In connection with the October

16, 2019 Registered Direct Offering, Ms.

Walsh purchased 50,000 shares of common stock at a price of $14.00 per share.

received proceeds of $700,000 from such purchase.

On October 7, 2019, Ms.

entered into a Warrant Amendment Agreement with the Company.

Walsh exercised Original Warrants for a total of 25,992 shares

of common stock and the Company received proceeds of $416,000.

On November 3, 2019, Ms.

Walsh entered into a Settlement Agreement

with the Company, pursuant to which the Company agreed to issue Ms.

Walsh 3,714 additional shares of common stock.

As of March 31, 2020 and December

31, 2019, Ms.

Walsh owned 100% of the Company’s Series A Preferred Stock and 21.2% and 22.8%, respectively, of the outstanding

shares of the Company’s common stock.

For the Six Months Ended June 30,

2020 and 2019

Segment Information

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designated based on the geographic region to which the product is delivered.

Net revenue by geographic region for the three months

ended March 31, 2020 and 2019 was as follows:

Net revenue by geographic region for the three and

six months ended June 30, 2020 and 2019 was as follows:

(in thousands)

For the three months ended

For the six months ended

United States

1 unchanged sentence

assets are located in the United States.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Subsequent Events

Reverse Stock Split

On April 8, 2020, the Company

announced that its board of directors had approved a 1-for-20 reverse split (the "Reverse Stock Split") of its common

stock that became effective on April 9, 2020.

The common stock began trading on a split-adjusted basis on that day under the new

CUSIP number 86633R 203.

All common stock share numbers, warrants to purchase common stock, prices and exercise prices have been

retroactively adjusted to reflect the Reverse Stock Split.

The par value of the common stock and the Series A Preferred Stock outstanding

and its par value were not adjusted for the Reverse Stock Split.

Closing of Public Offering

On April 23, 2020, the Company

announced that it closed an underwritten public offering of 1,525,000 shares of its common stock, pre-funded common stock purchase

warrants to purchase up to an aggregate of 475,000 shares of common stock, and common stock purchase warrants to purchase up to

an aggregate of 2,000,000 shares of the Company’s common stock.

Each share of common stock or pre-funded common stock purchase

warrant was sold together with one common stock purchase warrant to purchase one share of common stock at a combined price to the

public of $3.25 per share and common stock purchase warrant (or $3.24 per pre-funded common stock purchase warrant and common stock

purchase warrant).

Gross proceeds before deducting underwriting discounts, commissions and other offering expenses were approximately

$6.5 million.

In addition, the Company granted to Maxim Group LLC a 45-day option to purchase up to an additional 300,000 shares

of common stock and/or common stock purchase warrants to purchase up to an aggregate of 300,000 shares of common stock, at the

public offering price, less discounts and commissions, of which Maxim has partially exercised its option to purchase additional

common stock purchase warrants to purchase up to an aggregate of 229,100 shares of common stock.

Each common stock purchase warrant

is immediately exercisable for one share of common stock at an exercise price of $3.25 per share and will expire five years from

Nasdaq Notice

On April 24, 2020, the Company

announced that it has received written notification from Nasdaq that the Company has regained compliance with Nasdaq’s minimum

bid price requirement of at least $1.00 per share under Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital

The Company had previously been notified by Nasdaq on October 16, 2019, that the Company’s closing bid price per

share had been below $1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum bid price

requirement under Nasdaq Listing Rule 5550(a)(2).

According to the notification letter, the Company had 180 days to regain compliance

by meeting or exceeding the minimum bid price for a period of at least 10 consecutive trading days, but the closing bid price of

the Company’s common stock did not satisfy this requirement.

On April 24, 2020, however, Nasdaq notified the Company that

it has determined that the closing bid price of the Company’s common stock for the 10 consecutive business days from April

9, 2020 through April 23, 2020 had been at least $1 per share.

Accordingly, the Company has regained compliance with the minimum

bid price requirement, and the matter is closed.

of Convertible Promissory Note

On April 29, 2020, the outstanding

debt of $2,040,000, owed to the Investor pursuant to the March 2020 Note, was fully repaid.

SUMMIT WIRELESS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2020

Subsequent Events , continued

Note Agreement

On May 3, 2020, we were granted

a loan (the “May 2020 Loan”) from Wells Fargo Bank, National Association in the aggregate amount of $846,636, pursuant

to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic

Security Act, which was enacted on March 27, 2020.

The May 2020 Loan was funded on May 7, 2020.

The May 2020 Loan, which is

in the form of a PPP promissory note and agreement, dated May 3, 2020 (the “Note Agreement”), matures on May 3, 2022

and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 1, 2020.

The May 2020 Loan may be prepaid

by us at any time prior to maturity with no prepayment penalties.

We intend to use the May 2020 Loan amount for payroll costs,

costs used to continue group health care benefits, rent, and utilities.

Under the terms of the Note Agreement, certain amounts

of the May 2020 Loan may be forgiven if they are used for qualifying expenses, as described in the Note Agreement.

Alexander Settlement Agreement

On May 14, 2020, we entered

into the Alexander Settlement Agreement, pursuant to which, in consideration for Alexander releasing us from all claims against

us arising out of the Engagement Agreement, other than indemnification for certain third-party claims, we agreed to (i) pay Alexander

a one-time cash payment of $125,000 and (ii) issue to Alexander 50,000 shares of our common stock (the “Alexander Settlement

Shares”).

We also released Alexander from the same type of claims against Alexander, other than indemnification for certain

third-party claims.

In connection with the Alexander Settlement Agreement, on May 14, 2020, we also entered into a leak-out agreement

with Alexander (the “Leak-Out Agreement”), pursuant to which Alexander shall not dispose of more than 5,000 shares

of common stock in any trading day, commencing on the date of such agreement and ending on the date on which Alexander no longer

holds any Alexander Settlement Shares.

Adoption of 2020 Stock Incentive Plan

On July 27, 2020, the board

of directors adopted the Company’s 2020 Stock Incentive Plan (the “2020 Plan”) and the reservation of an aggregate

of 650,000 shares of the Company’s common stock authorized for issuance under the 2020 Plan, the adoption of which remains

subject to stockholder approval.

The 2020 Plan authorizes the grant of equity-based compensation to the Company’s senior

managers, employees, directors, consultants, professionals and service providers in the form of stock options, restricted stock

and restricted stock units.

On July 27, 2020, the Company also granted, subject to stockholder approval, an aggregate of 614,824

restricted stock units to senior managers, employees, directors, consultants.

Each of the awards are scheduled to vest on the first,

second, and third anniversaries of August 15, 2020, so long as such award recipient remains in service of the Company on each such

Each restricted stock unit represents the right to receive one share of the Company’s common stock under the

Notwithstanding the grants of such awards, the 2020 Plan will terminate if the Company does not obtain stockholder approval

on or before July 27, 2021, and shares of common stock may not be issued pursuant to restricted stock units until the Company’s

stockholders approve the 2020 Plan and such awards granted.

If stockholder approval of the 2020 Plan is not obtained within such

period, such restricted stock units will automatically expire and terminate.

Acceleration of Vesting of Restricted

In addition, on July 27, 2020,

the Company fully accelerated the vesting terms of 39,429 outstanding shares of restricted common stock that had been previously

awarded under the LTIP and 7,500 outstanding shares of restricted common stock that had been previously awarded outside the LTIP

Oliva as an inducement grant, such that all such stock awards are considered fully vested as of July 27, 2020.

will pay all taxes imposed on the holders of such awards in connection with the acceleration of such vesting terms.

Management’s Discussion and Analysis of

2 unchanged sentences

The information

contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended

(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties

set forth in this report.

Although management believes that the assumptions made and expectations reflected in the forward-looking

statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual

results will not be different from expectations expressed in this report.

contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as

amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange

Actual results may materially differ from those projected in the forward-looking statements as a result of certain

risks and uncertainties set forth in this report.

Although management believes that the assumptions made and expectations reflected

in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to

be correct or that actual results will not be different from expectations expressed in this report.

This filing contains

27 unchanged sentences

from the results expressed in, or implied by, these forward-looking statements.

Reverse Stock

On April 8, 2020, the Company announced

that its board of directors had approved a 1-for-20 reverse split (the "Reverse Stock Split") of its common stock that

became effective on April 9, 2020.

The common stock began trading on a split-adjusted basis on that day under the new CUSIP

number 86633R 203.

All common stock share numbers, warrants to purchase common stock, prices and exercise prices have been retroactively

adjusted to reflect the Reverse Stock Split.

The par value of the common stock and the Series A Preferred Stock outstanding

and its par value were not adjusted for the Reverse Stock Split.

We were formed as Summit Semiconductor,

2 unchanged sentences

2017, at which time we changed our name to Summit Semiconductor, Inc.

Effective as of September 11, 2018, we changed our name to Summit

Wireless Technologies, Inc.

We run our operations through Summit Wireless Technologies, Inc., as well as through our wholly-owned

subsidiaries, Summit Wireless Japan K.K., a Japanese corporation and WiSA, LLC, a Delaware limited liability company.

of our corporate headquarters is 6840 Via Del Oro, Ste.

Effective as of September 11, 2018, we changed

our name to Summit Wireless Technologies, Inc.

We run our operations through Summit Wireless Technologies, Inc., as well

as through our wholly-owned subsidiary, WiSA, LLC, a Delaware limited liability company.

The address of our corporate headquarters

is 6840 Via Del Oro, Ste.

280, San Jose, CA 95119.

Our website address is www.summitwireless.com .

The information contained in or accessible through our website is not part of this report and is intended for informational purposes

The information contained

in or accessible through our website is not part of this report and is intended for informational purposes only.

We are an early stage technology company

15 unchanged sentences

Interoperability:

As part of the effort to grow the wireless multichannel home audio segment,

we are a founding member of the WiSA Association, an association dedicated to providing industry leadership and consumer choice

through interoperability testing between brands.

Products developed to the WiSA standard work seamlessly together and eliminate

complicated setups common to traditional wired audio systems.

As part of the effort to grow the wireless multichannel home audio segment, we are a founding member of the WiSA Association, an association dedicated to providing industry leadership and consumer choice through interoperability testing between brands.

Products developed to the WiSA standard work seamlessly together and eliminate complicated setups common to traditional wired audio systems.

Immersive Audio Quality:

We currently sell custom semiconductor chips and wireless modules

to a growing list of major consumer electronics brands.

Our current wireless module technology transmits wireless audio to each

speaker at Blu-ray quality (uncompressed 24-bit audio up to 96 kHz sample rates).

To our knowledge, our custom chip and module

technology is the only technology available today that can stream up to eight (8) separate wireless audio channels for an

immersive wireless surround sound experience.

We currently sell custom semiconductor chips and wireless modules to a growing list of major consumer electronics brands.

Our current wireless module technology transmits wireless audio to each speaker at Blu-ray quality (uncompressed 24-bit audio up to 96 kHz sample rates).

To our knowledge, our custom chip and module technology is the only technology available today that can stream up to eight (8) separate wireless audio channels for an immersive wireless surround sound experience.

Lower Latency:

Our technology delivers wireless audio channels with low latency, critical

for removing lip-sync issues between audio and video sources.

We believe that a growing adoption of wireless audio technology

in support of video by leading brands will revolutionize the way that people experience media content through their mobile devices,

televisions (“TVs”), game consoles, personal computers (“PCs”), soundbars and smart speakers.

that our proprietary software, for which patent applications have been submitted, will provide similar functionality and quality

and allow us to embed our software into smart devices with Wi-Fi.

A prototype version of our software technology has been demonstrated

to select customers (pursuant to confidentiality agreements) at the 2020 Consumer Electronics Show in Las Vegas, Nevada.

that our software based-solution, which other brands can integrate into their devices, will (i) reduce integration costs for

mass market use, (ii) leverage widely accepted Wi-Fi connectivity, (iii) provide a low power consumption option to allow

for use in battery powered devices, and (iv) provide compatibility with popular consumer electronic operating systems.

On January 23, 2020, we entered into a

funding agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated accredited

Our technology delivers wireless audio channels with low latency, critical for removing lip-sync issues between audio and video sources.

We believe that a growing adoption of wireless

audio technology in support of video by leading brands will revolutionize the way that people experience media content through

their mobile devices, televisions (“TVs”), game consoles, personal computers (“PCs”), soundbars and smart

We believe that our proprietary software, for which patent applications have been submitted, will provide similar functionality

and quality and allow us to embed our software into smart devices with Wi-Fi.

A prototype version of our software technology has

been demonstrated to select customers (pursuant to confidentiality agreements) at the 2020 Consumer Electronics Show in Las Vegas,

We believe that our software based-solution, which other brands can integrate into their devices, will (i) reduce

integration costs for mass market use, (ii) leverage widely accepted Wi-Fi connectivity, (iii) provide a low power consumption

option to allow for use in battery powered devices, and (iv) provide compatibility with popular consumer electronic operating

On January 23, 2020, we entered into

a funding agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated accredited

investor of a convertible promissory note in the principal amount of $111,100, reflecting a 10% original issue discount, 500 shares

1 unchanged sentence

share in consideration for $100,000, which was funded on January 24, 2020.

Additionally, pursuant to the Funding Agreement, such

investor was granted a most favored nation right.

As of the date of this report, the outstanding debt owed to such investor pursuant

Additionally, pursuant to the Funding Agreement,

such investor was granted a most favored nation right.

In March 2020, the outstanding debt owed to such investor pursuant

to the Funding Agreement has been fully repaid.

On February 28, 2020, we completed a private

placement (the “February 2020 Private Placement”) of 91,062 units (the “Units”), each unit consisting of

(i) one (1) share of common stock and (ii) a warrant to purchase 0.50 of a share of common stock (the “February 2020 Warrants”),

at a price per Unit of $9.17.

The Units were issued pursuant to a Unit Purchase Agreement, dated February 4, 2020, and a subscription

agreement, dated February 28, 2020 by and among us and the purchasers signatory thereto.

In connection with the February 2020 Private

Placement, we paid Alexander Capital, L.P.

(“Alexander”) cash fees of $83,000 and issued to Alexander a warrant to

purchase 4,553 shares of common stock.

Such warrant is exercisable at a per share price of $8.80 and is exercisable at any time

during the five-year period commencing on the date of issuance.

The February 2020 Private Placement, which was priced above market,

resulted in gross proceeds of $835,000 before fees and other expenses associated with the transaction.

We used the net proceeds

of approximately $725,000 from the offering for working capital purposes and increasing stockholders’

equity in order to

comply with Nasdaq Listing Rule 5550(b) and for general corporate purposes.

The February 2020 Warrants are exercisable

to purchase up to an aggregate of 45,534 shares of common stock commencing on the date of issuance at an exercise price of $9.80

per share, subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

The February 2020 Warrants

are exercisable immediately and will expire on the close of business on February 28, 2025.

The exercise of the February 2020 Warrants

are subject to beneficial ownership limitations such that each holder of such February 2020 Warrant may exercise it to the extent

that such exercise would result in such holder being the beneficial owner in excess of 4.99% (or, upon election of such holder,

9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase

in such limitation will not be effective until 61 days following notice to us.

On March 30, 2020, we completed a private

placement (the “March 2020 Private Placement”) of a senior secured convertible instrument (the “March 2020 Note”)

and a warrant (the “March 2020 Warrant”) to purchase 227,679 shares of common stock at an exercise price of $6.40 per

share, pursuant to which Maxim Group LLC (“Maxim”) acted as placement agent.

The March 2020 Note and March 2020 Warrant

were issued pursuant to a securities purchase agreement, entered into as of March 22, 2020 (the “March 2020 Purchase Agreement”)

by and between us and an institutional investor (the “Investor”).

The March 2020 Private Placement resulted in gross

proceeds of $1,700,000, before fees and other expenses associated with the transaction, including but not limited to, an $85,000

commitment fee payable to the Investor.

The net proceeds to be received by us in connection with the March 2020 Private Placement

will be used primarily for working capital, debt repayment and general corporate purposes.

Additionally, we agreed to issue to

Maxim a warrant to purchase up to an aggregate of 20,400 shares of common stock, subject to adjustment, as partial consideration

for serving as placement agent in connection with the March 2020 Private Placement.

Potential Impacts of the Novel

Coronavirus (“COVID-19”) on Our Business and Operations

On February 28, 2020, we completed

a private placement (the “February 2020 Private Placement”) of 91,062 units, each unit consisting of (i) one

(1) share of common stock and (ii) a warrant to purchase 0.50 of a share of common stock, at a price per unit of $9.17.

The units were issued pursuant to a Unit Purchase Agreement, dated February 4, 2020, and a subscription agreement, dated February 28,

2020 by and among us and the purchasers signatory thereto.

In connection with the February 2020 Private Placement, we paid

Alexander Capital, L.P.

(“Alexander”) cash fees of $83,000 and issued to Alexander a warrant to purchase 4,553 shares

of common stock.

Such warrant is exercisable at a per share price of $8.80 and is exercisable at any time during the five-year

period commencing on the date of issuance.

The February 2020 Private Placement, which was priced above market, resulted in

gross proceeds of $835,000 before fees and other expenses associated with the transaction.

We used the net proceeds of approximately

$725,000 from the offering for working capital purposes and increasing stockholders’

equity in order to comply with Nasdaq

Listing Rule 5550(b) and for general corporate purposes.

The warrants issued to the investors are exercisable to purchase

up to an aggregate of 45,534 shares of common stock commencing on the date of issuance at an exercise price of $9.80 per share,

subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

Such warrants are exercisable immediately

and will expire on the close of business on February 28, 2025.

The exercise of such warrants are subject to beneficial ownership

limitations such that each holder of a warrant may exercise it to the extent that such exercise would result in such holder being

the beneficial owner in excess of 4.99% (or, upon election of such holder, 9.99%), which beneficial ownership limitation may be

increased or decreased up to 9.99% upon notice to us, provided that any increase in such limitation will not be effective until

61 days following notice to us.

On March 30, 2020, we completed a

private placement (the “March 2020 Private Placement”) of a senior secured convertible promissory note and a warrant

to purchase 227,679 shares of common stock at an exercise price of $6.40 per share, pursuant to which Maxim Group LLC (“Maxim”)

acted as placement agent.

Such note and warrant were issued pursuant to a securities purchase agreement, entered into as of March 22,

2020 (the “March 2020 Purchase Agreement”) by and between us and an institutional.

The March 2020 Private

Placement resulted in gross proceeds of $1,700,000, before fees and other expenses associated with the transaction, including but

not limited to, an $85,000 commitment fee payable to the investor.

The net proceeds received by us in connection with the March 2020

Private Placement were used primarily for working capital, debt repayment and general corporate purposes.

Additionally, we agreed

to issue to Maxim a warrant to purchase up to an aggregate of 20,400 shares of common stock, subject to adjustment, as partial

consideration for serving as placement agent in connection with the March 2020 Private Placement.

On April 29, 2020,

the outstanding debt of $2,040,000, owed to the investor pursuant to the note, was fully repaid.

On April 23, 2020, the Company announced

that it closed an underwritten public offering of 1,525,000 shares of its common stock, pre-funded common stock purchase warrants

to purchase up to an aggregate of 475,000 shares of common stock, and common stock purchase warrants to purchase up to an aggregate

of 2,000,000 shares of the Company’s common stock.

Each share of common stock or pre-funded common stock purchase warrant

was sold together with one common stock purchase warrant to purchase one share of common stock at a combined price to the public

of $3.25 per share and common stock purchase warrant (or $3.24 per pre-funded common stock purchase warrant and common stock purchase

Gross proceeds before deducting underwriting discounts, commissions and other offering expenses were approximately $6.5

In addition, the Company granted to Maxim a 45-day option to purchase up to an additional 300,000 shares of common stock

and/or common stock purchase warrants to purchase up to an aggregate of 300,000 shares of common stock, at the public offering

price, less discounts and commissions, of which Maxim partially exercised its option to purchase additional common stock purchase

warrants to purchase up to an aggregate of 229,100 shares of common stock.

Each common stock purchase warrant is immediately exercisable

for one share of common stock at an exercise price of $3.25 per share and will expire five years from issuance.

On April 24, 2020, the Company announced

that it has received written notification from Nasdaq that the Company has regained compliance with Nasdaq’s minimum bid

price requirement of at least $1.00 per share under Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq

Capital Market.

The Company had previously been notified by Nasdaq on October 16, 2019, that the Company’s closing bid

price per share had been below $1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum

bid price requirement under Nasdaq Listing Rule 5550(a)(2).

According to the notification letter, the Company had 180 days

to regain compliance by meeting or exceeding the minimum bid price for a period of at least 10 consecutive trading days, but the

closing bid price of the Company’s common stock did not satisfy this requirement.

On April 24, 2020, however, Nasdaq

notified the Company that it has determined that the closing bid price of the Company’s common stock for the 10 consecutive

business days from April 9, 2020 through April 23, 2020 had been at least $1 per share.

Accordingly, the Company has

regained compliance with the minimum bid price requirement, and the matter is closed.

On May 3, 2020, we received a loan

(the “PPP Loan”) from Wells Fargo Bank, National Association in the aggregate amount of $847,000, pursuant to the Paycheck

Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act,

which was enacted on March 27, 2020.

The PPP Loan was funded on May 7, 2020.

The PPP Loan, which is in the

form of a PPP promissory note and agreement, dated May 3, 2020 (the “PPP Note Agreement”), matures on May 3,

2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 1, 2020.

The PPP Loan may be

prepaid by us at any time prior to maturity with no prepayment penalties.

We intend to use the PPP Loan amount for payroll costs,

costs used to continue group health care benefits, rent, and utilities.

Under the terms of the PPP Note Agreement, certain amounts

of the PPP Loan may be forgiven if they are used for qualifying expenses, as described in the PPP Note Agreement.

On May 14, 2020, we entered into a

settlement agreement with Alexander (the “Alexander Settlement Agreement”), pursuant to which, in consideration for

Alexander releasing us from all claims against us arising out of that certain engagement agreement, dated February 6, 2020,

that we entered into with Alexander (the “Alexander Engagement Agreement”), other than indemnification for certain

third-party claims, we agreed to (i) pay Alexander a one-time cash payment of $125,000 and (ii) issue to Alexander 50,000

shares of our common stock (the “Alexander Settlement Shares”) which had a value of approximately $111,000.

released Alexander from the same type of claims against Alexander, other than indemnification for certain third-party claims.

connection with the Alexander Settlement Agreement, on May 14, 2020, we also entered into a leak-out agreement with Alexander

(the “Alexander Leak-Out Agreement”), pursuant to which Alexander was not permitted to dispose of more than 5,000 shares

of common stock in any trading day, commencing on the date of such agreement and ending on the date on which Alexander no longer

holds any Alexander Settlement Shares.

On May 18, 2020, we registered for

resale, pursuant to a prospectus supplement to our shelf registration statement, an aggregate of 60,250 shares of common stock,

50,000 of which shares were the Alexander Settlement Shares, and the remaining 10,250 of such shares (the “Vendor Payment

Shares”) were issued to the Managing Partner of DFC Advisory Services, LLC d/b/a Tailwinds Research Group (“Vendor”)

pursuant to the Settlement Letter, dated May 12, 2020, by and between us and Vendor (the “Vendor Settlement Letter”)

and the letter, dated May 17, 2020, executed by the Vendor, the Managing Partner and us, pursuant to which the Vendor assigned

its right to the Vendor Payment Shares to the Managing Partner (the “Vendor Assignment Letter”, and collectively with

the Vendor Settlement Letter, the “Vendor Settlement Letters”).

The Vendor Payment Shares were issued on May 14,

2020, and (i) the Alexander Settlement Shares were issued to Alexander as partial payment of the amounts payable to Alexander

under the terms of the Alexander Settlement Agreement and (ii) the Vendor Payment Shares were issued lieu of a cash payment

owed to Vendor pursuant to the Vendor Settlement Letters.

No cash proceeds were received by the Company from the issuance of the

Alexander Settlement Shares or the Vendor Payment Shares, but (i) payment of a portion of the amount payable by us to Alexander

under the terms of the Alexander Settlement Agreement was satisfied by the issuance of the Alexander Settlement Shares in addition

to a one-time cash payment by the Company of $125,000 thereunder and (ii) outstanding accounts payable owed by the Company

to Vendor in connection with the Vendor Settlement Letters were fully satisfied upon issuance of Vendor Payment Shares.

all of the expenses incurred in connection with the registration of the Shares.

On June 4, 2020, we entered into

a securities purchase agreement (the “June 4 th Purchase Agreement”) with several accredited investors

providing for the issuance of (i) 2,275,000 shares of the Company’s common stock and (ii) warrants, with a term

of 5.5 years, to purchase an aggregate of up to 2,275,000 shares of common stock at an exercise price of $2.55 per share, subject

to customary adjustments thereunder, which warrants were immediately exercisable upon issuance and on a cashless basis if such

warrants have not been registered on or before six months after the date of issuance.

Pursuant to the June 4 th

Purchase Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $5,801,000.

Pursuant to the June 4 th Purchase Agreement, an aggregate of 2,275,000 shares of common stock were issued to the

investors in a registered direct offering pursuant to a prospectus supplement to the Company’s currently effective registration

statement on Form S-3, which was declared effective on September 6, 2019.

The Company filed the prospectus supplement

on June 5, 2020.

Maxim acted as the placement agent.

The warrants were issued to the investors in a concurrent private placement

transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of

the Securities Act and/or Regulation D promulgated thereunder.

The Company paid Maxim a fee of approximately $464,000, which was

equal to 8% of the aggregate purchase price paid by investors placed by Maxim and certain expenses.

The June 4 th

Purchase Agreement contains customary representations, warranties and agreements of the Company and the investors and customary

indemnification rights and obligations of the parties thereto.

The offering of the securities pursuant to the June 4 th

Purchase Agreement was closed on June 8, 2020.

The Company will use the net proceeds from this Offering for working

capital, capital expenditures, product development, and other general corporate purposes, including investments in sales and marketing

in the United States and internationally.

On June 9, 2020, we entered into

a securities purchase agreement (the “June 9 th Purchase Agreement”) with several accredited investors

providing for the issuance of (i) 2,040,000 shares of the Company’s common stock and (ii) warrants, with a term

of 5.5 years, to purchase an aggregate of up to 2,040,000 shares of common stock at an exercise price of $2.61 per share, subject

to customary adjustments thereunder, which warrants were immediately exercisable upon issuance and on a cashless basis if the

Warrants have not been registered on or before six months after the date of issuance.

Pursuant to the June 9 th

Purchase Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $5,324,000.

Pursuant to the June 9 th Purchase Agreement, an aggregate of 2,040,000 shares of common stock were issued to the

investors in a registered direct offering, pursuant to a prospectus supplement to the Company’s currently effective registration

statement on Form S-3, which was declared effective on September 6, 2019.

The Company filed the prospectus supplement

on June 10, 2020.

Maxim acted as the placement agent.

The warrants were issued to the investors in a concurrent private placement

transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of

the Securities Act and/or Regulation D promulgated thereunder.

The Company paid the Maxim a fee of approximately $426,000, which

was equal to 8% of the aggregate purchase price paid by investors placed by Maxim and certain expenses.

The June 9 th

Purchase Agreement contains customary representations, warranties and agreements of the Company and the investors and customary

indemnification rights and obligations of the parties thereto.

The offering of the securities pursuant to the June 9 th

Purchase Agreement was closed on June 11, 2020.

The Company will use the net proceeds from this Offering for working

capital, capital expenditures, product development, and other general corporate purposes, including investments in sales and marketing

in the United States and internationally.

On June 19, 2020, Sam Runco notified

the Company of his decision to resign from the Company’s board of directors (the “Board”), effective June 19,

Runco served on the Nominating and Corporate Governance Committee of the Board.

Runco did not resign due

to any disagreement between the Company and Mr.

Runco, or any matter related to the Company’s operations, policies or

On June 22, 2020, the Board, pursuant to its powers under the Company’s bylaws, appointed Sri Peruvemba as

a member of the Board to replace Mr.

Runco, effective June 22, 2020.

Peruvemba will serve as a director until

the next annual meeting of the Company’s stockholders, at which time he will stand for election until the annual meeting

of the Company’s stockholders following his election, or his earlier resignation, retirement, or other termination of service.

Potential Impacts of the Novel Coronavirus

(“COVID-19”) on Our Business and Operations

The COVID-19 pandemic represents a fluid

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including many of our suppliers and customers, are reporting or predicting negative impacts from COVID-19 on future operating results.

Although we observed significant declines in demand for our products and services from certain customers during April 2020, we

believe that it remains too early for us to know the exact impact that COVID-19 will have on overall demand for such products,

Although we observed significant declines in demand for our products and services from certain customers during April 2020,

we believe that it remains too early for us to know the exact impact that COVID-19 will have on overall demand for such products,

technology, and services.

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discussed in this and other sections of this quarterly report on Form 10-Q.

We do not expect there to be material changes to our

assets on our balance sheet or our ability to timely account for those assets.

Further, in connection with the preparation of this

quarterly report on Form 10-Q and the interim financial statements contained herein, we reviewed the potential impacts of the COVID-19

pandemic on intangible assets and have determined there to be no material impact at this time.

We have also reviewed the potential

impacts on future risks to the business as it relates to collections, returns and other business-related items.

We do not expect there to be material changes

to our assets on our balance sheet or our ability to timely account for those assets.

Further, in connection with the preparation

of this quarterly report on Form 10-Q and the interim financial statements contained herein, we reviewed the potential impacts

of the COVID-19 pandemic on intangible assets and have determined there to be no material impact at this time.

We have also reviewed

the potential impacts on future risks to the business as it relates to collections, returns and other business-related items.

To date, travel restrictions and border

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requiring all employees who can work from home to work from home;

increasing our IT networking capability to best assure that employees can work effectively outside

increasing our IT networking capability to best assure that employees can work effectively outside the office;

for employees who must perform essential functions in one of our offices:

1 unchanged sentence

having employees stay segregated from other employees in the office with whom they require no interaction;

requiring employees to wear masks while they are in the

office whenever possible.

We currently believe that revenue for

the three months ending June 30, 2020 will decline significantly year over year due to the conditions noted.

If business interruptions

resulting from COVID-19 were to be prolonged or expanded in scope, our business, financial condition, results of operations and

cash flows would be negatively impacted.

We will continue to actively monitor this situation and will implement actions necessary

to maintain business continuity.

Comparison of the Three Ended March

31, 2020 and 2019

Revenue for the three months ended March

31, 2020 was $411,000, a decrease of $54,000, or 12%, compared to the same period of 2019.

The decrease in revenue was attributable

to lower module sales.

requiring employees to wear masks while they are in the office whenever possible.

If business interruptions resulting from

COVID-19 were to be prolonged or expanded in scope, our business, financial condition, results of operations and cash flows would

be negatively impacted.

We will continue to actively monitor this situation and will implement actions necessary to maintain business

Comparison of the Three and Six Months

Ended June 30, 2020 and 2019

Revenue for the three months ended June 30,

2020 was $348,000, and comparable to the revenue for the three months ended June 30, 2019 of $352,000.

Revenue for the six months ended June 30,

2020 was $759,000, a decrease of $58,000, or 7%, compared to the revenue for the six months ended June 30, 2019 of $817,000.

The decrease in revenue was attributable to lower module sales.

Cost of Revenue and Operating Expenses

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Cost of revenue for the three months ended

March 31, 2020 was $348,000, a decrease of $59,000, or 14%, compared to the same period of 2019.

Cost of revenue decreased primarily

as a result of decreased module sales between comparable time periods.

June 30, 2020 was $336,000, and comparable to the cost of revenue for the three months ended June 30, 2019 of $330,000.

Cost of revenue for the six months ended

June 30, 2020 was $684,000, a decrease of $53,000, or 7%, compared to the cost of revenue for the six months ended June 30,

2019 of $737,000.

Cost of revenue decreased primarily as a result of decreased module sales between comparable time periods.

Research and Development

Research and development expenses for the

three months ended March 31, 2020 were $1,134,000, a decrease of $227,000, compared to the same period of 2019.

The decrease in

research and development expenses is primarily related to decreased consulting and recruiting fees of $210,000 and $29,000, respectively.

three months ended June 30, 2020 were $904,000, a decrease of $501,000, compared to the research and development expenses

for the three months ended June 30, 2019 of $1,405,000.

The decrease in research and development expenses is primarily related

to decreased salary and benefit expenses of $266,000 as well as decreased consulting and facility allocation fees of $194,000 and

$39,000, respectively.

Research and development expenses for the

six months ended June 30, 2020 were $2,038,000, a decrease of $728,000 compared to the research and development expenses for

the six months ended June 30, 2019 of $2,766,000.

The decrease in research and development expenses is primarily related to

decreased salary and benefit expenses of $284,000, consulting fees of $404,000, and recruiting fees $29,000, partially offset by

increased stock compensation of $32,000.

Sales and Marketing

Sales and marketing expenses for the three

months ended March 31, 2020 were $698,000, a decrease of $51,000, compared to the same period of 2019.

The decrease in sales and

marketing expenses is primarily related to reduced consulting fees of approximately $121,000, which includes $5,000 of decreased

stock compensation charges, offset partially by increased salary and benefit expenses of $48,000 and increased stock compensation

charges of $20,000.

months ended June 30, 2020 were $510,000, a decrease of $166,000, compared to the sales and marketing expenses for the three

months ended June 30, 2019 of $676,000.

The decrease in sales and marketing expenses is primarily related to decreased salary

and benefit expenses of $46,000, reduced consulting fees of approximately $77,000, which includes $22,000 of decreased stock compensation

charges, decreased travel and public relation charges of $30,000 and $45,000, respectively.

Sales and marketing expenses for the six

months ended June 30, 2020 were $1,208,000, a decrease of $217,000 compared to the sales and marketing expenses for the six

months ended June 30, 2019 of $1,425,000.

The decrease in sales and marketing expenses is primarily related to reduced consulting

fees of approximately $197,000, which includes $27,000 of decreased stock compensation charges, decreased travel and public relation

charges of $49,000 and $54,000, respectively, offset partially by increased advertising, product management fees and employee stock compensation charges of $16,000, $20,000 and $36,000, respectively.

General and Administrative

General and administrative expenses for

the three months ended March 31, 2020 were $891,000, an increase of $276,000, compared to the same period of 2019.

in general and administrative expenses is primarily related to increased salary and benefit expenses of $73,000, as the Company

added a senior financial executive in September 2019, increased stock compensation and accounting expenses of $38,000 and $36,000,

respectively, and a contingency accrual of $250,000 related to the Alexander threatened litigation discussed in Note 8 –

Contingencies.

The increase was partially offset by decreased legal fees and investor relation expenses of $28,000 and $65,000,

the three months ended June 30, 2020 were $607,000, a decrease of $50,000, compared to the general and administrative expenses

for the three months ended June 30, 2019 of $657,000.

The decrease in general and administrative expenses is primarily related

to decreased investor relation expenses of $248,000, partially offset by increased consulting and legal expenses of $41,000 and

$165,000, respectively.

General and administrative expenses for

the six months ended June 30, 2020 were $1,498,000, an increase of $226,000 compared to the general and administrative expenses

for the six months ended June 30, 2019 of $1,272,000.

The increase in general and administrative expenses is primarily related

to increased salary and benefit expenses of $71,000, as the Company added a senior financial executive in September 2019,

increased stock compensation and legal expenses of $73,000 and $138,000, respectively, and a contingency accrual of $237,000 related

to the Alexander settlement discussed in Note 8 –

Contingencies.

The increase was partially offset by decreased investor

relation expenses of $313,000.

Interest Expense

Interest expense for the three months ended

March 31, 2020 was $37,000, compared to $0 for the same period of 2019.

Interest expense for the three months ended March 31, 2020

was primarily due to the amortization of debt discounts associated with the convertible debt that the Company incurred in March

No interest expense was booked in the three months ended March 31, 2019, as the Company had no outstanding debt.

June 30, 2020 was $1,352,000, an increase of $1,352,000 compared to the interest expense for the three months ended June 30,

No interest expense was booked in the three months ended June 30, 2019 as the Company had no outstanding debt.

Interest expense for the three months ended June 30, 2020 was due to the full amortization of debt discounts associated with

the convertible debt that the Company incurred in March 2020, as such convertible debt was fully repaid in April 2020.

No interest expense was booked in the three months ended June 30, 2019, as the Company had no outstanding debt.

Interest expense for the six months ended

June 30, 2020 was $1,389,000, an increase of $1,389,000 compared to the interest expense for the six months ended June 30,

Interest expense for the six months ended June 30, 2020 was due to the full amortization of debt discounts associated

with the convertible debt that the Company incurred in March 2020, as such convertible debt was fully repaid in April 2020.

No interest expense was booked in the six months ended June 30, 2019, as the Company had no outstanding debt.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability

for the three months ended March 31, 2020 resulted in a gain of $19,000, compared to a gain of $111,000 in the same period of 2019.

The gain for each of the three months ended March 31, 2020 and 2019, was due to the decrease in our common stock price during the

for the three months ended June 30, 2020 resulted in a gain of $5,000, compared to a gain of $64,000 due to the change in

fair value of warrant liability for the three months ended June 30, 2019.

The gain for the three months ended June 30,

2020 and 2019 is due to the decrease in our common stock price during the period.

Change in fair value of warrant liability

for the six months ended June 30, 2020 resulted in a gain of $24,000, compared to a gain of $175,000 due to the change in

fair value of warrant liability for the six months ended June 30, 2019.

The gain for the six months ended June 30, 2020

and 2019 is due to the decrease in our common stock price during the period.

Change in Fair Value of Derivative Liability

There was no change in fair value of derivative

liability for the three months ended June 30, 2020 and 2019.

Change in fair value of derivative liability

for the six months ended June 30, 2020 was $0, compared to an expense of $171,000 for the six months ended June 30, 2019.

The $171,000 expense recorded in the six months ended June 30, 2019 was related to the change in fair value of the embedded

conversion feature included in the Company’s Series A Preferred Stock as of June 30, 2019.

Liquidity and Capital Resources

Cash and cash equivalents as of March 31,

Cash and cash equivalents as of June 30,

2020 were $12,088,000, compared to $298,000 as of December 31, 2019.

The increase in cash and cash equivalents during the three months

ended March 31, 2020 was directly related to the February 2020 Private Placement, whereby the Company raised net proceeds of $725,000

and the sale of convertible notes, under which the Company raised net proceeds of $1,665,000.

The increase in cash and cash equivalents during the

six months ended June 30, 2020 was directly related to the issuance of common stock, prefunded warrants and related warrants

whereby the Company raised net proceeds of $16,540,000, the issuance of convertible notes, under which the Company raised net proceeds

of $1,396,000 and the issuance of a note payable, under which the Company raised $847,000.

The cash provided by these financing

activities was somewhat offset by the use of cash to fund operations and working capital of $1,820,000.

activities was offset by the use of cash to fund operations and repayment of convertible notes payable totaling $2,151,000.

We incurred a net loss of $6,078,000 for

the three months ended March 31, 2020 and used net cash in operating activities of $1,820,000.

For the three months ended March

the six months ended June 30, 2020 and used net cash in operating activities of $4,832,000.

For the six months ended June 30,

2019, we incurred a net loss of $5,389,000 and used net cash in operating activities of $5,377,000.

Excluding non-cash adjustments,

the primary reasons for the decrease in the use of net cash from operating activities during the three months ended March 31, 2020

was related to the increase in accounts payable and accrued liabilities of $512,000 and $196,000, respectively.

the primary reasons for the use of net cash from operating activities during the six months ended June 30, 2020 is related

to the decrease in accounts payable and accrued liabilities of $353,000 and $491,000, respectively offset by the decrease in prepaid

expenses and other assets of $359,000, compared to the increase in inventories of $699,000 offset partially by an increase in accounts

payable of $486,000 during the six months ended June 30, 2019.

We are an early stage company and have

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements