Datavault AI Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock, par value $0.0001 per share (the “Common Stock”), is currently listed on the Nasdaq Capital Market under the symbol “WISA.” Holders As of March 12, 2021, there were approximately 123 holders of record of our Common Stock. This number does not include shares of Common Stock held by brokerage clearing houses, depositories or others in unregistered form. Dividends We have never declared or paid any cash dividends on our Common Stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors (the “Board”). Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. Securities Authorized for Issuance under Equity Compensation Plans Reference is made to “ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized for Issuance under Equity Compensation Plans ” for the information required by this item. Recent Sales of Unregistered Securities All share and price per share information in Part II of this Report has been adjusted to reflect our one-for-twenty reverse stock split of our outstanding Common Stock, which became effective for the trading of our Common Stock on April 9, 2020: 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. As of December 31, 2020, the outstanding debt owed to such investor pursuant to the Funding Agreement has been fully repaid. On February 28, 2020, the Company completed a private placement (the “February 2020 Private Placement”) of $835,000 of units (the “Units”), which consisted of (i) 91,062 shares of Common Stock and (ii) five-year warrants to purchase up to an aggregate of 45,534 shares of Common Stock, which were immediately exercisable upon issuance at $9.80 per share, subject to 4.99% beneficial ownership limitations and adjustment for stock splits and similar capital changes (the “February 2020 Warrants”). The Units were issued at a price per Unit of $9.17 pursuant to unit purchase agreements, dated February 4, 2020 (the “Unit Purchase Agreements”), and subscription agreements, 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 proceeds of such offering were used primarily for increasing stockholders’ equity in order to comply with Nasdaq Listing Rule 5550(b) and for general corporate purposes. 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. The March 2020 Note and March 2020 Warrant were issued pursuant to a securities purchase agreement (the “March 2020 Purchase Agreement”), entered into as of March 22, 2020, 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. The net proceeds received by the Company in connection with the March 2020 Private Placement was used primarily for working capital, debt repayment and general corporate purposes. Additionally, the Company agreed to issue to Maxim Group LLC, the placement agent for the March 2020 Private Placement, 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. 9 On June 8, 2020, the Company closed a registered direct offering (the “June 8 th Offering”) for gross proceeds of approximately $5.8 million, before deducting underwriting discounts and commissions and estimated offering expenses of (i) an aggregate of 2,275,000 shares of Common Stock and (ii) the June 8 th Warrants, with a term of 5.5 years, which are exercisable for 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. The net proceeds from the June 8 th Offering are being used for working capital, capital expenditures, product development, and other general corporate purposes, including investments in sales and marketing in the United States and internationally. The June 8 th Offering was conducted pursuant to a securities purchase agreement, dated June 4, 2020, by and among us and each of the Selling Stockholders, as well as a placement agency agreement, dated June 4, 2020, between us and Maxim Group LLC, the placement agent for such offering. On June 11, 2020, the Company closed a registered direct offering (the “June 11 th Offering”) for gross proceeds of approximately $5.3 million, before deducting underwriting discounts and commissions and estimated offering expenses of (i) an aggregate of 2,040,000 shares of Common Stock and (ii) the June 11 th Warrants, with a term of 5.5 years, which are exercisable for 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. The net proceeds from the June 11 th Offering are being used for working capital, capital expenditures, product development, and other general corporate purposes, including investments in sales and marketing in the United States and internationally. The June 11 th Offering was conducted pursuant to a securities purchase agreement, dated June 9, 2020, by and among us and each of the Selling Stockholders, as well as a placement agency agreement, dated June 9, 2020, between us and Maxim Group LLC, the placement agent for such offering. On November 9, 2020, in order to resolve a dispute between the Unit holders and the Company regarding certain registration rights in connection with the Unit Purchase Agreements, we entered into that certain Settlement and Release Agreement (the “Unit Settlement Agreements”) with each Unit holder, pursuant to which (i) we and the Unit holders agreed to amend the February 2020 Warrants to provide for the purchase of one additional share of Common Stock for each share of Common Stock available under the February 2020 Warrants, (ii) we and the Unit holders agreed to amend the February 2020 Warrants to reduce the exercise price to $2.55 (the “Amended Warrants”), and (iii) we agreed to issue an additional 236,375 shares of Common Stock and common stock purchase warrants to purchase up to an aggregate of 236,369 shares of Common Stock (the “New Unit Warrants”). As consideration for the foregoing, the Unit holders agreed to release any and all claims they may have against us, including, but not limited to, claims arising in connection with any shares of Common Stock, February 2020 Warrants, and Amended Warrants held by the Unit holders. On July 27, 2020, the board of directors of the Company (the “Board”) adopted the Company’s 2020 Stock Incentive Plan (the “2020 Plan”) and the reservation of an aggregate of 650,000 shares of Common Stock authorized for issuance under the 2020 Plan, which 2020 Plan was approved by the Company's stockholders on October 20, 2020. On July 27, 2020, the Company granted an aggregate of 614,824 restricted stock units (“RSUs”) under the 2020 Plan to certain participants under the 2020 Plan (the “Participants”), subject to stockholder approval of the 2020 Plan. Each of the RSUs granted to the Participants are scheduled to vest on the first, second, and third anniversaries of August 15, 2020, so long as such Participant remains in the service of the Company on each such anniversary. Each RSU represents the right to receive one share of Common Stock under the 2020 Plan. The Company intends for the shares of Common Stock issuable under the 2020 Plan to be registered under a Form S-8 registration statement, and for the RSUs granted to the Participants to be registered for resale pursuant to a prospectus included in such registration statement, which the Company filed with the SEC on February 27, 2021. On October 5, 2020, we entered into an agreement with a third party platform provider pursuant to which such provider agreed to host certain of our company information, including our presentations, on its platform. In partial consideration for such services, upon entering into such agreement, we issued 25,000 restricted shares of Common Stock to such provider. The sale and the issuance of the foregoing securities were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act (“Regulation D”). We made this determination based on the representations of each investor, as applicable, which included, in pertinent part, that each such investor was either (a) an “accredited investor” within the meaning of Rule 501 of Regulation D or (b) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and upon such further representations from each investor that (i) such investor acquired the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investor agreed not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investor had knowledge and experience in financial and business matters such that he, she or it was capable of evaluating the merits and risks of an investment in us, (iv) such investor had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (v) such investor had no need for the liquidity in its investment in us and could afford the complete loss of such investment. In addition, there was no general solicitation or advertising for such securities issued in reliance upon these exemptions. Item 6. [Reserved] 10 Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of our financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this Report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this Report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results. Overview We were formed as Summit Semiconductor, LLC, a Delaware limited liability company, on July 23, 2010. We converted to a Delaware corporation, effective December 31, 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 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 only. We are an early stage technology company and our primary business focus is to enable mainstream consumers and audio enthusiasts to experience high quality audio. We intend to continue selling our semiconductors and wireless modules to consumer electronics companies while also increasing our focus on implementing a software licensing business segment. Our technology addresses some of the main issues that we perceive are hindering the growth of the home theater: complexity and cost. We believe that consumers want to experience theater quality surround sound from the comfort of their homes. However, wired home theater systems often require expensive audio-visual (“AV”) receivers to decode the audio stream, leaving the consumer with the burden of concealing the wires. Hiring a professional to hide the wires into the walls or floor is invasive, complicated, costly and time consuming. Further, people who rent as opposed to own may not be able to install these systems as the installation construction needed may not be permitted under a lease agreement. Our first-generation wireless technology addresses these problems by transmitting wireless audio to each speaker at Blu-ray quality (uncompressed 24-bit audio up to 96 kHz sample rates) and emphasizing ease of setup. To our knowledge, our custom chips and modules technology is one of the only technologies available today that can stream up to eight (8) separate wireless audio channels with low latency, removing lip-sync issues between the audio and video sources. In addition, every speaker within a system that utilizes our technology can be synchronized to less than one microsecond, thus eliminating phase distortion between speakers. Our first-generation technology shows that wireless home theater systems are viable home audio solutions for the average consumer and audio enthusiast alike. We are currently developing certain proprietary software for which patent applications have been submitted that we believe will allow us to enable smart devices that have Wi-Fi and video media to deliver surround sound audio. A prototype version of our software technology has been demonstrated to select customers (pursuant to confidentiality agreements) at the Consumer Electronics Show 2020 in Las Vegas, Nevada. Our goal is to commercialize a software based-solution, which other brands can integrate into their devices, that will (i) reduce integration costs for mass market use, (ii) utilize Wi-Fi for wireless connectivity, making it easy to integrate into today’s high volume, low cost systems on a chip (“SOC”) and modules, (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. To date, our operations have been funded through sales of our common and preferred equity, debt instruments, and revenue from the sale of our products. Our consolidated financial statements contemplate the continuation of our business as a going concern. However, we are subject to the risks and uncertainties associated with an emerging business, as noted above we have no established source of capital, and we have incurred recurring losses from operations since inception. 11 Plan of Operation Our plan of operation is to focus our efforts in offering a suite of technologies that will enable mainstream consumers and audio enthusiasts to experience high quality audio. We intend to continue selling our semiconductors and wireless modules to consumer electronics companies while also increasing our focus on implementing a software licensing business segment. We have designed wireless modules that provide high performance wireless audio for our customers to build into their products like a speaker, TV, or dongle for example. These modules include our custom semiconductors with our IP built in as well as a Wi-Fi radio for communications. By designing and selling these modules we can reduce our customers design expense, accelerate their time-to-market cycle, and reduce the cost of each module. Summit offers both a “TX” module to transmit the audio from a host device like a media hub, TV or dongle to WiSA-enabled speakers and an “RX” model for speakers, that receives the wireless audio signal and processes it for audio play out. Industry Background The primary growth segments for in home entertainment have been “Bluetooth” stereo accessories which include single speakers, headsets, and more recently, “multi-room” stereo speakers that use your home’s Wi-Fi network to stream audio throughout the house. Potential Impacts of the Novel Coronavirus (“COVID-19”) on Our Business and Operations The COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business partners. Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. By that time, much of our first fiscal quarter was completed. During our second fiscal quarter, we observed decreased demand from certain of our customers due to the temporary closure by many retailers. Our third and fourth fiscal quarters saw improved customer demand as retailers partially reopened and demand for an in-home immersive cinema experience increased, while public cinemas remained closed throughout many regions in the country. However, another closure by retailers, as well as a reopening of more public cinemas, could impact customer demand in the future. Given the fact that our products are sold through a variety of distribution channels, we expect that our sales will experience some volatility as a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic. We are aware that many companies, including many of our suppliers and customers, are reporting or predicting negative impacts from COVID-19 on future operating results. To date, we have experienced a shipment delay from one of our suppliers due to COVID-19, however we do not believe such delay will have a material adverse impact on our operating results and we have not experienced a material supply interruption. There can be no assurance that we will not experience material supply delays or interruptions in the future due to COVID-19, although we do not believe supply interruptions to be likely at this time. To date, travel restrictions and border closures have not materially impacted our ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in a way that would harm our business over the long term. Travel restrictions impacting people can restrain our ability to assist our customers and distributors as well as impact our ability to develop new distribution channels, but at present we do not expect these restrictions on personal travel to be material to our business operations or financial results. We have taken steps to restrain and monitor our operating expenses and therefore we do not expect any such impacts to materially change the relationship between costs and revenues. Like most companies, we have taken a range of actions with respect to how we operate to assure that we comply with government restrictions and guidelines as well as best practices to protect the health and well-being of our employees and our ability to continue operating our business effectively. To date, we have been able to operate our business effectively using these measures and to maintain all internal controls. We also have not experienced challenges in maintaining business continuity and do not expect to incur material expenditures to do so. However, the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise in the future. 12 The actions that we have taken so far during the pandemic include, but are not limited to: • 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 the office; • for employees who must perform essential functions in one of our offices: • having employees maintain a distance of at least six feet from other employees whenever possible; • having employees stay segregated from other employees in the office with whom they require no interaction; and • requiring employees to wear masks while they are in the office whenever possible. We continue to monitor the impacts of COVID-19 on our operations closely and this situation could change based on a significant number of factors that are not entirely within our control and are discussed in this and other sections of this Report. As of the date of this Report, 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. 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. Critical Accounting Policies The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, our observance of trends in the industry and information available from other outside sources, as appropriate. Please see Note 2 of the Notes to the Consolidated Financial Statements for a more complete description of our significant accounting policies. We utilize the extended transition period provided in Securities Act Section 7(a)(2)(B) as allowed by Section 107(b)(1) of the JOBS Act for the adoption of new or revised accounting standards as applicable to emerging growth companies. As part of the election, we will not be required to comply with any new or revised financial accounting standard until such time that a company that does not qualify as an “issuer” (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such new or revised accounting standards. As an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditor’s attestation report on our internal control in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies. Comparison of the Years Ended December 31, 2020 and 2019 Revenue Revenue for the year ended December 31, 2020 was $2,404,000, an increase of $738,000, or 44%, compared to the revenue of $1,666,000 for the year ended December 31, 2019. The increase was primarily due to increased volumes. Cost of Revenue and Operating Expenses Cost of Revenue Cost of revenue for the year ended December 31, 2020 was $1,977,000, an increase of $240,000, compared to cost of revenue of $1,737,000 for the year ended December 31, 2019. The increase was primarily attributable to the direct material costs associated with higher sales volumes, partially offset by $251,000 of reduced inventory obsolescence charges. Research and Development Research and development expenses for the year ended December 31, 2020 were $4,572,000, a decrease of $855,000, compared to expenses of $5,427,000 for the year ended December 31, 2019. The decrease in research and development expenses is primarily related to decreased salary and benefit expenses of $408,000, reduced consulting fees, direct materials, travel expenses and recruiting fees of $564,000, $77,000, $33,000 and $68,000, respectively, partially offset by increased stock compensation of $170,000. 13 Sales and Marketing Sales and marketing expenses for the year ended December 31, 2020 were $2,974,000, an increase of $140,000, compared to expenses of $2,834,000 for the year ended December 31, 2019. The increase in sales and marketing expenses is primarily related to increased stock compensation and advertising of $179,000 and $314,000, respectively, offset partially by reduced consulting fees, travel and public relation charges of $160,000, $107,000 and $91,000, respectively. General and Administrative General and administrative expenses for the year ended December 31, 2020 were $4,168,000, an increase of $1,339,000, compared to expenses of $2,829,000 for the year ended December 31, 2019. The increase in general and administrative expenses is primarily related to increased salary and benefit expenses of $176,000, as the Company added a senior financial executive in September 2019, increased stock compensation and legal expenses of $396,000 and $191,000, respectively, and settlement expenses of $879,000, which is discussed in Note 8 of the Company’s consolidated financial statements (Contingencies). The increase was partially offset by decreased investor relations expenses of $316,000. Interest Expense, net Interest expense, net for the year ended December 31, 2020 was $1,397,000, compared to $0 for the year ended December 31, 2019. Interest expense, net for the year ended December 31, 2020 was primarily 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. Change in Fair Value of Warrant Liability Change in fair value of warrant liability for the year ended December 31, 2020 resulted in a gain of $16,000, compared to a gain of $204,000 for the year ended December 31, 2019. The gain for the year ended December 31, 2019 was due to the decrease in our Common Stock price during both the respective periods. Change in Fair Value of Derivative Liability Change in fair value of derivative liability for the year ended December 31, 2020 was $0, compared to an expense of $171,000 for the year ended December 31, 2019. The $171,000 expense recorded in the year ended December 31, 2019 was related to the change in fair value of the embedded conversion feature included in the Company’s 8% Senior Convertible Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), as of December 31, 2019. Other Expense, net Other expense, net for the year ended December 31, 2020 was $34,000, compared to other expense of $902,000 during the same period of 2019. Other expense, net for the year ended December 31, 2019 was primarily comprised of an $892,000 change in fair value of common stock warrants upon repricing. Liquidity and Capital Resources Cash and cash equivalents as of December 31, 2020 were $7,415,000, compared to $298,000 as of December 31, 2019. The increase in cash and cash equivalents during the year ended December 31, 2020 was directly related to the issuance of Common Stock, prefunded warrants and related warrants whereby the Company raised net proceeds of $16,156,000, the issuance of convertible notes for 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 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 $12,705,000 for the year ended December 31, 2020 and used net cash in operating activities of $9,859,000. For the year ended December 31, 2019, we incurred a net loss of $12,038,000 and used net cash in operating activities of $11,032,000. Excluding non-cash adjustments, the primary reasons for the use of net cash from operating activities during the year ended December 31, 2020 is related to the decrease in accounts payable of $882,000, offset partially by the increase in accrued liabilities of $263,000. We are an early stage company and have generated losses from operations since inception. In order to execute our long-term strategic plan to further develop and fully commercialize our core products, we will need to raise additional funds, through public or private equity offerings, debt financings, or other means. These conditions raise substantial doubt about our ability to continue as a going concern. Going Concern The consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. We are an early stage company and have generated losses from operations since inception. 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. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. 14 Based on current operating levels, the Company may need to raise additional funds in the second half of 2021. Management of the Company intends to raise additional funds through the issuance of equity securities or debt. There can be no assurance that such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are not required to provide the information required by this Item as we are a smaller reporting company.