What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-16 · 67 added, 81 removed, 30 unchanged (83% of the section changed)

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Cautionary Notice Regarding Forward Looking Statements

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, 2022 (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 a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance.

All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, and also including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements.

In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking.

These forward-looking statements are subject to certain risks and uncertainties, including those discussed below.

Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements.

We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Examples of forward-looking statements include, but are not limited to, statements we make regarding:

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

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

● our expectations about the impact of our strategic plans;

● the amount and timing of our capital expenditures.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing.

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

This Quarterly Report on Form 10-Q (this “Report”) 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”).

Forward-looking statements discuss matters that are not historical facts.

Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions.

These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of WiSA Technologies, Inc.’s (“WiSA”, the “Company”, “our”, “us” or “we”) operations;

business strategies;

future cash flows;

financing plans;

plans and objectives of management;

any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.

From time to time, forward-looking statements also are included in our other periodic reports on Form 10-K, 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public.

Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including risks related to market, economic and other conditions;

the ongoing economic and social consequences of the COVID-19 pandemic;

WiSA’s ability to continue as a going concern;

WiSA’s ability to manage costs and execute on its operational and budget plans;

and, WiSA’s ability to achieve its financial goals.

Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.

All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

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.

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Current research and development investments focus on developing Wi-Fi compatible software for transmitting multichannel wireless audio for which patent applications have been submitted.

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 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.

The Company’s “Discovery” module first announced in January 2021 is the first IoT module solution with our embedded wireless audio software that specifically targets the high growth Dolby ATMOS soundbar market with a low cost transceiver.

The Discovery module is capable of supporting ATMOS configurations up to 5.1.4.

requiring five separate wireless audio channels.

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.

Continuing 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.

Given the fact that our products are sold through a variety of distribution channels, we have experienced and we continue to 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 as well as supply chain disruptions and the impacts of inflation.

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, which have not had a material adverse impact on our operating results for the quarter ended September 30, 2022.

Although we have not directly 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.

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.

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

Revenue for the three months ended September 30, 2022 was $937,000 a decrease of $870,000, or 48%, compared to the revenue for three months ended September 30, 2021 of $1,807,000.

The decrease was a result of lower Component revenue which decreased by $936,000, compared to the three months ended September 30, 2021, offset partially by Consumer Audio Product sales which increased by $66,000, compared to the three months ended September 30, 2021.

The decrease in Component revenue was due in part to (i) a decrease in demand and (ii) 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.

Revenue for the nine months ended September 30, 2022 was $2,449,000, a decrease of $2,092,000, or 46%, compared to the revenue for the nine months ended September 30, 2021 of $4,541,000.

The decrease was a result of lower Component revenue which decreased by $2,180,000, compared to the nine months ended September 30, 2021, offset partial by Consumer Audio Product sales which increased by $88,000, compared to the nine months ended September 30, 2021.

Strategic Advisor

During the third quarter of 2022, the Company retained a strategic advisor to explore strategic opportunities specifically involving the Company’s intellectual property.

Potential strategic opportunities that may be explored or evaluated as part of this process include the potential for capital raising transactions, an acquisition, sale of assets, including substantially all of the Company’s assets, merger, business combination, partnership, joint venture, licensing and/or another strategic alternative.

Despite the Company’s efforts to identify and evaluate potential strategic transactions, the process may not result in any definitive offer to consummate a strategic transaction, or, if we receive such a definitive offer, the terms may not be as favorable as anticipated or may not result in the execution or approval of a definitive agreement.

We depend upon the timely delivery of products from our vendors and purchases from our partners and customers.

We depend on manufacturers and component customers to deliver and purchase hardware and consumer electronics in quantities sufficient to meet customer demand.

In addition, we depend on these manufacturers and customers to introduce new and innovative products and components to drive industry sales.

During the fourth quarter of 2022 and first quarter of 2023, we have experienced sales declines indirectly through disruption in the supply chain for several of our industry partners or customers whose own supply chains have been disrupted based on a variety of macroeconomic events that may or may not be related to the COVID-19 pandemic, which have resulted in delays throughout the consumer electronics industry.

Any material delay in the introduction or delivery, or limited allocations of products or offerings could result in reduced sales by us, which could have a material adverse impact on our financial results.

Any reduction in allocation of components or new hardware platforms or other technological advances by vendors or our customers (in which our technology is part of their hardware offering) to third parties such as big box retailers, could also have a material adverse impact on our financial results.

Disruptions and delays in our supply chains as a result of the COVID-19 pandemic could adversely impact manufacturers’ and other customers’ ability to meet customer demand.

Additionally, the prioritization of shipments of certain products as a result of the COVID-19 pandemic could cause delays in the shipment or delivery of our products.

Such disruptions could also result in reduced sales by us, which could materially and adversely impact on our financial results.

Comparison of the Three Months Ended March 31, 2023 and 2022

Revenue for the three months ended March 31, 2023 was $469,000 a decrease of $97,000 or 17%, compared to the revenue for the three months ended March 31, 2022 of $566,000.

The decrease was a result of lower Consumer Audio Product sales which decreased by $123,000 compared to the three months ended March 31, 2022, partially offset by higher Component revenue which increased by $26,000 compared to the three months ended March 31, 2022.

The decrease in overall sales is primarily related to a slow-down in consumer spending on consumer electronics.

Gross Profit and Operating Expenses

Gross profit for the three months ended September 30, 2022 was $130,000, a decrease of $376,000 compared to $506,000 gross profit for the three months ended September 30, 2021.

The decrease in gross profit is mainly attributable to lower volumes of Component sales.

The gross margin as a percent of sales was 14% for the three months ended September 30, 2022 compared to 28% for the three months ended September 30, 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.

Gross profit for the nine months ended September 30, 2022 was $380,000, a decrease of $880,000 compared to $1,260,000 gross profit for the nine months ended September 30, 2021.

The decrease in gross profit is mainly attributable to lower volumes of Component sales.

The gross margin as a percent of sales was 16% for the nine months ended September 30, 2022 compared to 28% for the nine months ended September 30, 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.

Gross profit for the three months ended March 31, 2023 was ($1,253,000), a decrease of $1,315,000, compared to $62,000 gross profit for the three months ended March 31, 2022.

The gross margin as a percent of sales was (267%) for the three months ended March 31, 2023 compared to 11.0% for the three months ended March 31, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $1.3 million increase in inventory reserves as a result of certain excess raw materials, primarily attributable to the out of balance inventory associated with longer lead time semiconductor chips, lower volumes of Consumer Audio Product sales and lower pricing of our Consumer Audio Products.

Research and Development

Research and development expenses for the three months ended September 30, 2022 were $1,939,000, an increase of $617,000, compared to the research and development expenses for the three months ended September 30, 2021 of $ 1,322,000.

The increase in research and development expenses is primarily related to increased salary and benefit expenses, consulting expenses and stock-based compensation expenses of $325,000, $244,000, and $27,000, respectively.

Research and development expenses for the nine months ended September 30, 2022 were $5,359,000, an increase of $1,559,000 compared to the research and development expenses for the nine months ended September 30, 2021 of $3,800,000.

The increase in research and development expenses is primarily related to increased salary and benefit expenses, stock-based compensation expenses, consulting expenses and recruiting expenses $820,000, $79,000, $395,000 and $126,000 respectively.

Research and development expenses for the three months ended March 31, 2023 were $1,893,000, an increase of $356,000 compared to the research and development expenses for the three months ended March 31, 2022 of $1,537,000.

The increase in research and development expenses is primarily related to increased consulting expenses and salary and benefit expenses of $223,000 and $109,000, respectively.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2022 were $1,539,000, an increase of $518,000, compared to the sales and marketing expenses for the three months ended September 30, 2021 of $1,021,000.

The increase in sales and marketing expenses is primarily related to increased salary and benefit expenses, stock-based compensation expenses, consulting expenses, recruiting expenses, tradeshow expenses and advertising expenses of $84,000, $85,000, $57,000, $30,000, $28,000 and $148,000, respectively.

Sales and marketing expenses for the nine months ended September 30, 2022 were $4,165,000, an increase of $1,295,000, compared to the sales and marketing expenses for the nine months ended September 30, 2021 of $2,870,000.

The increase in sales and marketing expenses is primarily related to increased salary and benefit expenses, stock-based compensation expenses, consulting expenses, recruiting expenses, and advertising expenses of $365,000, $289,000, $139,000, $30,000 and $251,000, respectively.

Sales and marketing expenses for the three months ended March 31, 2023 were $1,294,000, an decrease of $6,000, compared to the sales and marketing expenses for the three months ended March 31, 2022 of $1,300,000.

The decrease in sales and marketing expenses is primarily related to decreased website development expenses and selling fees of $40,000 and $20,000, respectively, partially offset by increased consulting expenses.

General and Administrative

General and administrative expenses for the three months ended September 30, 2022 were $1,400,000, an increase of $319,000, compared to the general and administrative expenses for the three months ended September 30, 2021 of $1,081,000.

The increase in general and administrative expenses is primarily related to increased stock-based compensation expenses, consulting expenses, accounting fees and legal fees of $65,000, $112,000, $59,000 and $102,000, respectively.

General and administrative expenses for the nine months ended September 30, 2022 were $3,608,000 an increase of $571,000, compared to the general and administrative expenses for the nine months ended September 30, 2021 of $3,037,000.

The increase in general and administrative expenses is primarily related increased stock-based compensation expenses, consulting expenses, legal fees and board fees of $218,000, $139,000, $162,000 and $79,000, respectively.

Interest Expense

Interest expense for the three and nine months ended September 30, 2022, was $173,000 and $174,000, respectively.

Interest expense for the three and nine months ended September 30, 2022 was primarily due to the amortization of debt discounts associated with the convertible debt that the Company incurred in August 2022.

Interest expense for the three and nine months ended September 30, 2021 was not significant.

General and administrative expenses for the three months ended March 31, 2023 were $1,362,000, an increase of $236,000, compared to the general and administrative expenses for the three months ended March 31, 2022 of $1,126,000.

The increase in general and administrative expenses is primarily related to increased legal fees and shareholder expenses of $140,000 and $79,000, respectively.

The increase in legal and shareholder expenses are primarily attributable to expenses associated with the special shareholder meeting and implementation of a reverse stock split that occurred in January 2023.

Interest Expense, net

Interest expense, net for the three months ended March 31, 2023 was $723,000 an increase of $722,000, compared to the interest expense for the three months ended March 31, 2022 of $1,000.

The increase for the three months ended March 31, 2023, was primarily due to the amortization of debt discounts associated with the senior secured convertible note in the principal amount of $3,600,000 (the “Convertible Note”) that the Company incurred in August 2022.

Change in Fair Value of Warrant Liability

During the three and nine months ended September 30, 2022, there was a gain of $274,000 due to the change in fair value of the warrant liability.

The gain was due to the decrease in our common stock price during the period.

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

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, 2022.

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, 2022.

Warrant Inducement Expense

No warrant inducement occurred during the three and nine months ended September 30, 2022.

Change in fair value of warrant liability for the three months ended March 31, 2023 was $5,605,000, compared to $0 for the three months ended March 31, 2022.

The change in fair value of the warrant liability for the three months ended March 31, 2023 was due to the issuance of warrants in February 2023 associated with our stock offering and the subsequent decrease in the price of our common stock price at March 31, 2023 compared to the price of our stock on the date of the warrant issuance as well as the decline in our stock price from December 31, 2022, related to existing warrant liabilities.

Liquidity and Capital Resources

Cash and cash equivalents as of September 30, 2022 were $2,644,000, compared to $13,108,000 as of December 31, 2021.

We incurred a net loss of $12,661,000 for the nine months ended September 30, 2022 and used net cash in operating activities of $12,896,000.

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.

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, 2022, was related to the increase in net loss and increase in inventories, partially offset by an increase in accounts payable.

Cash and cash equivalents as of March 31, 2023 were $5,259,000, compared to $2,897,000 as of December 31, 2022.

We incurred a net loss of $921,000 for the three months ended March 31, 2023 and used net cash in operating activities of $4,618,000.

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.

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, 2023, was related to the decrease in inventories, partially offset by an increase in prepaid expenses and a decrease in 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.

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.

In August 2022, we received net proceeds of $2,483,000, from the issuance of a convertible promissory note to an investor.

In September 2022, we entered into a sales agreement with Maxim pursuant to which the Company may sell from time to time, shares of its common stock having an aggregate offering price of up to $4.0 million

through the Agent.

As of September 30, 2022, the Company has not sold any shares of common stock under the sales agreement.

We will need to raise proceeds via the issuance of equity securities and/or the sale of debt instruments in the fourth quarter of 2022 to fund operations through December 31, 2022 and into fiscal year 2023.

In August 2022, we received net proceeds of $2.5 million, from the issuance of a convertible promissory note to an investor.

In December 2022, we received net proceeds of $6.4 million, from the issuance of 540,000 shares of common stock (includes the exercise of 36,000 pre-funded warrants) and the issuance of 1,080,000 warrants to purchase common stock.

In February 2023, we received net proceeds of approximately $5.3 million from the issuance of 583,306 shares of common stock (includes the exercise of 381,762 pre-funded warrants) and the issuance of 874,959 warrants to purchase common stock.

In March 2023, we received net proceeds of approximately $1.6 million from the issuance of 837,207 shares of common stock and the issuance of 1,674,414 warrants to purchase common stock.

In April 2023, we raised gross proceeds of approximately $1.2 million through the issuance of common stock and warrants - see Note 11 – Subsequent Events for additional information.

We will need to raise additional proceeds via the issuance of equity securities and/or the sale of debt instruments by the third quarter of 2023 to fund operations through December 31, 2023.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis