What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-10 · 36 added, 76 removed, 58 unchanged (66% of the section changed)

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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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (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.

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● our expectations regarding future trends, expectations, and performance of our business;

our expectations regarding supply chain disruptions and its impact on our business;

● our expectations regarding supply chain disruptions and their impact on our business;

● our expectations about the impact of our strategic plans;

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Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.

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.

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 wireless audio.

We are an emerging technology company and our primary business focus is to enable mainstream consumers and audio enthusiasts to experience high quality wireless audio.

We intend to continue selling our proprietary wireless modules to consumer electronics companies while also expanding our focus to implement a lower cost solution by porting our software onto commercially available internet of things (“IoT”) modules with integrated Wi-Fi technology.

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A software solution enables smart devices that have Wi-Fi and video media to deliver surround sound audio and allows us to port our wireless audio technology to popular Wi-Fi based modules and systems on a chip (“SOC”) already shipping in volume.

The Summit Wireless “Discovery” module announced in January 2021 is the first IoT module solution with our embedded wireless audio software that supports up to four separate wireless audio channels and, we believe, reduces the cost per wireless channel by over 50% for soundbars and entry level home theater applications up to a 3.1 configuration.

The Company’s “Discovery” module announced in January 2021 is the first IoT module solution with our embedded wireless audio software that supports up to four separate wireless audio channels and, we believe, reduces the cost per wireless channel by over 50% for soundbars and entry level home theater applications up to a 3.1 configuration.

Our goal is to continue to commercialize and improve performance of 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 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.

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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.

In January 2021, pursuant to the Company’s solicitation of certain warrant holders, such warrant holders agreed to exercise warrants to purchase an aggregate of 1,221,675 shares of common stock for net proceeds of approximately $2.9 million.

In consideration for their exercise of these warrants, for cash, the exercising holders are being issued new warrants to purchase up to an aggregate of 305,419 shares of common stock, at an exercise price of $4.20 per share, which are exercisable for a period of five years.

On June 4, 2021, the Company entered into an exchange agreement, pursuant to which the Company exchanged with an investor 250,000 Series A 8% Senior Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) held by such investor for:

(i) 250,000 shares of common stock and (ii) warrants to purchase up to 187,500 shares of common stock.

The warrants were exercisable for a period of five (5) years and four (4) months.

The exercise price with respect to the warrants was $3.00 per share.

The exercise price and the number of shares of common stock issuable upon exercise of the warrants were subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

In June 2021, the investor subsequently fully exercised such warrant on a cashless basis for 79,244 shares of common stock.

On June 7, 2021, pursuant to the Company’s solicitation of certain warrant holders, such warrant holders agreed to exercise warrants to purchase an aggregate of 1,000,000 shares of common stock for net proceeds of approximately $2.3 million.

In consideration for their exercise of such warrants for cash, such holders were issued new warrants to purchase up to an aggregate of 250,000 shares of common stock at an exercise price of $4.46 per share, which are exercisable for a period of five years.

On July 22, 2021, the Company entered into a securities purchase agreement (the “July 22nd Purchase Agreement”) with several accredited investors providing for the issuance of 2,500,000 shares of the Company’s common stock.

Pursuant to the July 22nd Purchase Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $10,000,000.

Pursuant to the July 22nd Purchase Agreement, an aggregate of 2,500,000 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 offering of the securities pursuant to the July 22nd Purchase Agreement was closed on July 27, 2021, with the Company receiving net proceeds of $9,026,000.

Potential Impacts of the Novel Coronavirus (“COVID-19”) on Our Business and Operations

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During our second fiscal quarter of 2020, we observed decreased demand from certain of our customers due to the temporary closure by many retailers.

Our third and fourth fiscal quarters of 2020 and our first three fiscal quarters of 2021 saw sustained improved customer demand as retailers slowly reopened and demand for an in-home immersive cinema experience increased, following the initial closure of many public cinemas due to COVID-19.

Our third and fourth fiscal quarters of 2020 and our fiscal year 2021 saw sustained improved customer demand as retailers slowly reopened and demand for an in-home immersive cinema experience increased, following the initial closure of many public cinemas due to COVID-19.

However, another closure by retailers could impact customer demand in the future.

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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 shipment delays from our suppliers due to COVID-19, however we do not believe such delays will have a material adverse impact on our operating results and we have not experienced a material supply interruption.

To date, we have experienced shipment delays from our suppliers due to COVID 19, which have not had a material adverse impact on our operating results for the quarter ended March 31, 2022.

Although we have not experienced a material supply interruption, our customers have experienced, and may continue to experience, disruptions in their operations and supply chains as a result of COVID-19, which have resulted, and may in the future result, in delayed, reduced or canceled orders, or collection risks, and which have had, and may in the future have, an adverse effect on our results of operations.

There can be no assurance that we will not experience material supply delays or interruptions in the future due to COVID 19.

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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.

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Revenue for the three months ended September 30, 2021 was $1,807,000, an increase of $1,200,000, or 198%, compared to the revenue for three months ended September 30, 2020 of $607,000.

The increase was primarily due to increased sales volumes of both modules and speaker bundles.

Revenue for the nine months ended September 30, 2021 was $4,541,000, an increase of $3,175,000, or 232%, compared to the revenue for the nine months ended September 30, 2020 of $1,366,000.

The increase was primarily due to increased sales volumes of both modules and speaker bundles.

Cost of Revenue and Operating Expenses

Cost of Revenue

Cost of revenue for the three months ended September 30, 2021 was $1,301,000, an increase of $798,000, or 159%, compared to the cost of revenue for the three months ended September 30, 2020 of $503,000.

The increase was primarily attributable to the direct material costs associated with higher sales volume.

Cost of revenue for the nine months ended September 30, 2021 was $3,281,000, an increase of $2,094,000, or 176%, compared to the cost of revenue for the nine months ended September 30, 2020 of $1,187,000.

The increase was primarily attributable to the direct material costs associated with higher sales volume.

Comparison of the Three Months Ended March 31, 2022 and 2021

Revenue for the three months ended March 31, 2022 was $566,000, a decrease of $587,000, or 51%, compared to the revenue for three months ended March 31, 2021 of $1,153,000.

The decrease was a result of lower Component revenue which decreased by $689,000, compared to the three months ended March 31, 2021, partially offset by higher Consumer Audio Product sales which increased by $102,000, compared to the three months ended March 31, 2021.

This was also due in part to the supply chain interruptions experienced by our customers as a result of COVID-19, with their delaying orders to us until other components for their products could be obtained.

Gross Profit and Operating Expenses

Gross profit for the three months ended March 31, 2022 was $62,000, a decrease of $233,000 compared to $295,000 gross profit for the three months ended March 31, 2021.

The decrease in gross profit is mainly attributable to lower volumes of Component sales offset partially by the increase in sales of the Consumer Audio Products.

The gross margin as a percent of sales was 11.0% for the three months ended March 31, 2022 compared to 25.6% for the three months ended March 31, 2021.

The decrease in gross margin as a percent of sales is mainly attributable to reduced sales volumes in comparison to the fixed portion of costs included in our manufacturing.

Research and Development

Research and development expenses for the three months ended September 30, 2021 were $1,322,000, an increase of $82,000, compared to the research and development expenses for the three months ended September 30, 2020 of $1,240,000.

The increase in research and

development expenses is primarily related to increased salary and benefit expense of $153,000 and consultant expenses of $36,000, partially offset by decreased stock-based compensation expenses of $51,000 and reduced facility allocation expense of $50,000.

Research and development expenses for the nine months ended September 30, 2021 were $3,800,000, an increase of $522,000 compared to the research and development expenses for the nine months ended September 30, 2020 of $3,278,000.

The increase in research and development expenses is primarily related to increased salary and benefit expense of $556,000 and increased stock-based compensation and consulting expense of $74,000 and $81,000, respectively, partially offset by reduced facility allocation expense of $177,000.

Research and development expenses for the three months ended March 31, 2022 were $1,537,000, an increase of $364,000, compared to the research and development expenses for the three months ended March 31, 2021 of $1,173,000.

The increase in research and development expenses is primarily related to increased salary and benefit expenses, consulting expenses, stock based compensation expenses and recruiting expenses of $206,000, $73,000, $28,000 and $40,000, respectively.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2021 were $1,021,000, an increase of $186,000, compared to the sales and marketing expenses for the three months ended September 30, 2020 of $835,000.

The increase in sales and marketing expenses is primarily related increased salary and benefit expenses of $73,000, website development of $89,000 and advertising expenses of $87,000, partially offset by decreased stock-based compensation of $110,000.

Sales and marketing expenses for the nine months ended September 30, 2021 were $2,870,000, an increase of $827,000, compared to the sales and marketing expenses for the nine months ended September 30, 2020 of $2,043,000.

The increase in sales and marketing expenses is primarily related increased salary, incentive compensation and benefit expenses of $233,000, website development and advertising expenses of $272,000 and $370,000, respectively.

Sales and marketing expenses for the three months ended March 31, 2022 were $1,300,000, an increase of $426,000, compared to the sales and marketing expenses for the three months ended March 31, 2021 of $874,000.

The increase in sales and marketing expenses is primarily related increased salary and benefit expenses, stock-based compensation expenses, consulting expenses, website development expenses and advertising expenses of $132,000, $92,000, $81,000, $18,000 and $39,000, respectively.

General and Administrative

General and administrative expenses for the three months ended September 30, 2021 were $1,081,000, an increase of $67,000, compared to the general and administrative expenses for the three months ended September 30, 2020 of $1,014,000.

The increase in general and administrative expenses is primarily related to increased salary and benefit expenses, board fees and investor relations expenses of $22,000, $33,000 and $34,000, respectively, offset partially by increased stock-based compensation of $153,000.

General and administrative expenses for the nine months ended September 30, 2021 were $3,037,000, an increase of $525,000, compared to the general and administrative expenses for the nine months ended September 30, 2020 of $2,512,000.

The increase in general and administrative expenses is primarily related to increased salary, incentive compensation and benefit expenses of $178,000, increased stock-based compensation, board fees and investor relations expenses of $87,000, $33,000 and $141,000, respectively, partially offset by a $237,000 expense recorded in 2020 pursuant to the Alexander Settlement Agreement discussed in Note 6 – Convertible Preferred Stock and Stockholders’ Equity (Deficit) recorded in the prior year.

General and administrative expenses for the three months ended March 31, 2022 were $1,126,000, an increase of $158,000, compared to the general and administrative expenses for the three months ended March 31, 2021 of $968,000.

The increase in general and administrative expenses is primarily related to increased stock-based compensation expenses, business travel and board fees of $94,000, $22,000 and $38,000, respectively, offset partially by decreased investor relations expenses of $57,000.

Interest Expense

Interest expense for the three months ended September 30, 2021 was $3,000, a decrease of $2,000 compared to the interest expense for the three months ended September 30, 2020 of $5,000.

Minimal interest expense for both periods was primarily related to interest accrued on the PPP loan.

Interest expense for the nine months ended September 30, 2021 was $9,000, a decrease of $1,385,000, compared to the interest expense for the nine months ended September 30, 2020 of $1,394,000.

Minimal interest expense recorded in the nine months ended September 30, 2021, was primarily related to interest accrued on the PPP loan.

Interest expense for the nine months ended September 30, 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.

Interest expense for the three months ended March 31, 2022 was $1,000, a decrease of $2,000 compared to the interest expense for the three months ended March 31, 2021 of $3,000.

Change in Fair Value of Warrant Liability

There was no change in the fair value of the warrant liability for the three months ended September 30, 2021 and 2020.

There was no change in the fair value of the warrant liability for the nine months ended September 30, 2021, compared to a gain of $24,000 due to the change in fair value of the warrant liability for the nine months ended September 30, 2020.

The gain for the nine months ended September 30, 2020 was due to the decrease in our common stock price during the period.

Gain on Forgiveness of Paycheck Protection Loan

The Company recorded a gain of $859,000 due to the forgiveness of the Paycheck Protection Loan for the three and nine months ended September 30, 2021.

No such forgiveness occurred during the three and nine months ended September 30, 2020.

There was no change in the fair value of the warrant liability for the three months ended March 31, 2022 and 2021.

Deemed Dividend on Exchange of Convertible Preferred Stock for Common Stock

During the three and nine months ended September 30, 2021, the Company recorded a deemed dividend of $0 and $1,192,000 in connection with the exchange of all 250,000 shares of preferred stock for 250,000 shares of common stock and warrants to purchase up to 187,500 shares of common stock, which warrants were subsequently fully exercised on a cashless basis for 79,244 shares of common stock.

No such deemed dividend occurred during the three and nine months ended September 30, 2020.

No deemed dividend occurred during the three months ended March 31, 2022.

Warrant Inducement Expense

During the three and nine months ended September 30, 2021, the Company recorded a charge of $0 and $1,146,000, respectively, in connection with the fair value of warrants issued to warrant holders in connection with a solicitation of such warrant holders to exercise their outstanding warrants during this period.

See Note 6 – Convertible Preferred Stock and Stockholders’ Equity (Deficit).

No such inducement occurred during the three and nine months ended September 30, 2020.

No warrant inducement occurred during the three months ended March 31, 2022, compared to $567,000 in the three months ended March 31, 2021.

Liquidity and Capital Resources

Cash and cash equivalents as of September 30, 2021 were $16,067,000, compared to $7,415,000 as of December 31, 2020.

We incurred a net loss of $8,751,000 for the nine months ended September 30, 2021 and used net cash in operating activities of $8,574,000.

We incurred a net loss of $9,068,000 for the nine months ended September 30, 2020 and used net cash in operating activities of $7,499,000.

Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the nine months ended September 30, 2021, was related to the increase in accounts receivable, inventories, prepaid expenses and other assets, partially offset by an increase in accounts payable and accrued liabilities.

We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments (approximately $17,028,000 raised from various financings in fiscal 2020).

In addition, during the nine months ended September 30, 2021, we raised approximately $8,303,000 from exercises of warrants which were acquired by investors in conjunction with such financings during fiscal 2020.

Warrants exercisable for approximately 4,053,384 shares of common stock with exercise prices ranging from $2.32 to $4.46 per share, remain outstanding.

Additionally, in July 2021, we raised approximately $9,026,000 in net proceeds in a registered direct offering from the issuance and sale of 2,500,000 shares of common stock at a price of $4.00 per share.

Cash and cash equivalents as of March 31, 2022 were $9,061,000, compared to $13,108,000 as of December 31, 2021.

We incurred a net loss of $3,904,000 for the three months ended March 31, 2022 and used net cash in operating activities of $4,034,000.

We incurred a net loss of $3,292,000 for the three months ended March 31, 2021 and used net cash in operating activities of $2,771,000.

Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the three months ended March 31, 2022, was related to the increase in inventories, partially offset by an increase in accounts payable.

We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments.

In July 2021, we raised approximately $9,026,000 in net proceeds in a registered direct offering from the issuance and sale of 2,500,000 shares of common stock at a price of $4.00 per share.

For the year ended December 31, 2021, we raised net proceeds of approximately $8,303,000 from exercises of warrants which were acquired by investors in conjunction with such financings completed during fiscal 2020.

As of March 31, 2022, warrants exercisable for approximately 1,647,165 shares of common stock, remain outstanding, with exercise prices ranging from $1.52 to $2.61 per share.

In December 2021, the Company entered into an “at-the-market” sales agreement with Maxim Group LLC (the “Agent”), pursuant to which the Company may sell from time to time, shares of its common stock having an aggregate offering price of up to $4.5 million through the Agent.

As of March 31, 2022, the Company has not sold any shares of common stock under the ATM Program.

We believe that our current level of liquid assets will be sufficient to fund our operations through the balance of fiscal 2022.

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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 2. Management’s Discussion and Analysis