What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 52 added, 45 removed, 75 unchanged (56% of the section changed)

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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;

WiSA’s ability to continue as a going concern;

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

our current liquidity position, the need to obtain additional financing to support ongoing operations, WiSA’s ability to continue as a going concern;

WiSA’s ability to maintain the listing of its common stock on Nasdaq, WiSA’s ability to manage costs and execute on its operational and budget plans;

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

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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 IP software onto commercially available internet of things (“IoT”) modules with integrated Wi-Fi technology.

Our technology addresses some of the main issues that we perceive are hindering the growth of the home theater:

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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.

However, wired home theater systems often require expensive audio-visual (or 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.

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Current research and development investments focus on developing Wi-Fi compatible IP 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”) that is currently in production.

chip (or SOC), that is currently in production.

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.

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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.

To date, our operations have been funded through sales of our common and preferred equity, proceeds from the exercise of warrants to purchase common stock, sale of debt instruments, and revenue from the sale of our products.

To date, our operations have been funded through sales of our common and preferred equity, proceeds from the exercise of warrants, sale of debt instruments, and revenue from the sale of our products.

Our condensed consolidated financial statements contemplate the continuation of our business as a going concern.

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On October 31, 2022, we announced that we are moving forward in our exploration of strategic alternatives to consider a wide range of options.

To explore strategic opportunities specifically involved in our IP and licensable software used in WiSA E and WiSA DS technologies, the Board of Directors approved the engagement of AQ Technology Partners during the third quarter of 2022.

To explore strategic opportunities specifically involved in our IP and licensable software used in WiSA E and WiSA DS technologies, our board of directors approved the engagement of AQ Technology Partners during the third quarter of 2022.

To date, five companies have executed non-disclosure agreements in consideration of a potential transaction.

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However, there can be no assurance that the parties will successfully negotiate and enter into definitive agreements regarding the proposed transaction, or that the proposed transaction will be completed as currently contemplated, or at all.

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Revenue for the three months ended June 30, 2023 was $425,000, a decrease of $521,000 or 55%, compared to the revenue for the three months ended June 30, 2022 of $946,000.

The decrease in overall sales is primarily related to a slow-down in consumer spending on consumer electronics which resulted in lower Component revenue and Consumer Audio Product revenue of $459,000 and $62,000, respectively, compared to the three months ended June 30, 2022.

Revenue for the six months ended June 30, 2023 was $894,000, a decrease of $618,000 or 41%, compared to the revenue for the six months ended June 30, 2022 of $1,512,000.

The decrease in overall sales is primarily related to a slow-down in consumer spending on consumer electronics which resulted in lower Component revenue and Consumer Audio Product revenue of $433,000 and $185,000, respectively, compared to the six months ended June 30, 2022.

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

Revenue for the three months ended September 30, 2023 was $769,000, a decrease of $168,000 or 18%, compared to the revenue for the three months ended September 30, 2022 of $937,000.

The decrease in overall sales is primarily related to a slow-down in consumer spending on consumer electronics which resulted in lower Component revenue of $437,000 offset partially by higher Consumer Audio Product revenue of $269,000, when compared to the three months ended September 30, 2022.

Revenue for the nine months ended September 30, 2023 was $1,663,000, a decrease of $786,000 or 32%, compared to the revenue for the nine months ended September 30, 2022 of $2,449,000.

The decrease in overall sales is primarily related to a slow-down in consumer

spending on consumer electronics which resulted in lower Component revenue of $870,000 offset slightly by higher Consumer Audio Product revenue of $84,000, when compared to the nine months ended September 30, 2022.

Gross Profit and Operating Expenses

Gross Profit (Deficit)

Gross deficit for the three months ended June 30, 2023 was ($201,000), a decrease of $389,000, compared to $188,000 gross profit for the three months ended June 30, 2022.

The gross margin (deficit) as a percent of sales was (47%) for the three months ended June 30, 2023, compared to 20% for the three months ended June 30, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $169,000 increase in inventory reserves associated with our Consumer Audio Product products, lower sales volumes sales volumes in relation to the fixed portion of costs and lower pricing of our Consumer Audio Products.

Gross deficit for the six months ended June 30, 2023 was ($1,454,000), a decrease of $1,704,000 compared to $250,000 gross profit for the six months ended June 30, 2022.

The gross margin as a percent of sales was (163%) for the six months ended June 30, 2023, compared to 17% for the six months ended June 30, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $1.4 million increase in inventory reserves primarily attributable to the out of balance inventory associated with longer lead time semiconductor chips, lower sales volumes sales volumes in relation to the fixed portion of costs and lower pricing of our Consumer Audio Products.

Gross deficit for the three months ended September 30, 2023 was ($1,669,000) a decrease of $1,799,000, compared to $130,000 gross profit for the three months ended September 30, 2022.

The gross margin (deficit) as a percent of sales was (217%) for the three months ended September 30, 2023, compared to 14% for the three months ended September 30, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $1.4 million increase in inventory reserves primarily attributable to our semiconductor chips, lower sales volumes in relation to the fixed portion of costs and lower pricing of our Consumer Audio Products.

Gross deficit for the nine months ended September 30, 2023 was ($3,123,000), a decrease of $3,503,000 compared to $380,000 gross profit for the nine months ended September 30, 2022.

The gross margin (deficit) as a percent of sales was (188%) for the nine months ended September 30, 2023, compared to 16% for the nine months ended September 30, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $2.8 million increase in inventory reserves primarily attributable to our semiconductor chips, lower sales volumes in relation to the fixed portion of costs and lower pricing of our Consumer Audio Products.

Research and Development

Research and development expenses for the three months ended June 30, 2023 were $1,933,000, an increase of $50,000, compared to the research and development expenses for the three months ended June 30, 2022 of $1,883,000.

The increase in research and development expenses is primarily related to increased consulting expenses of $121,000, which includes outside engineering, offset partially by reduced recruiting expenses of $68,000.

Research and development expenses for the six months ended June 30, 2023 were $3,826,000 an increase of $406,000, compared to the research and development expenses for the six months ended June 30, 2022 of $3,420,000.

The increase in research and development expenses is primarily related to increased salary and benefit expenses of $81,000, consulting expenses, which includes outside engineering and direct materials used in research and development of $344,000 and $23,000, respectively, partially offset by reduced recruiting fees of $108,000.

Research and development expenses for the three months ended September 30, 2023 were $1,838,000, a decrease of $101,000, compared to the research and development expenses for the three months ended September 30, 2022 of $1,939,000.

The decrease in research and development expenses is primarily related to decreased salary and benefit expenses of $71,000 and consulting expenses, which includes outside engineering expenses of $52,000.

Research and development expenses for the nine months ended September 30, 2023 were $5,664,000, an increase of $305,000 compared to the research and development expenses for the nine months ended September 30, 2022 of $5,359,000.

The increase in research and development expenses is primarily related to increased consulting expenses, which includes outside engineering and direct materials used in research and development of $292,000 and $48,000, respectively, partially offset by reduced recruiting fees of $128,000.

Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2023 were $1,089,000 a decrease of $237,000, compared to the sales and marketing expenses for the three months ended June 30, 2022 of $1,326,000.

The decrease in sales and marketing expenses is primarily related to lower salary and benefit expenses of $39,000 as well as lower consulting, website development and advertising fees of $17,000, $22,000 and $116,000, respectively.

Sales and marketing expenses for the six months ended June 30, 2023 were $2,383,000 a decrease of $243,000, compared to the sales and marketing expenses for the six months ended June 30, 2022 of $2,626,000.

Sales and marketing expenses for the three months ended September 30, 2023 were $1,404,000, a decrease of $135,000, compared to the sales and marketing expenses for the three months ended September 30, 2022 of $1,539,000.

The decrease in sales and marketing expenses is primarily related to lower website development and advertising fees of $96,000 and $61,000, respectively, partially offset by increased consulting fees of $31,000.

Sales and marketing expenses for the nine months ended September 30, 2023 were $3,787,000 a decrease of $378,000, compared to the sales and marketing expenses for the nine months ended September 30, 2022 of $4,165,000.

The decrease in sales and marketing expenses is primarily related to lower advertising expenses and website expenses of $191,000 and $160,000, respectively.

General and Administrative

General and administrative expenses for the three months ended June 30, 2023 were $1,470,000, an increase of $388,000, compared to the general and administrative expenses for the three months ended June 30, 2022 of $1,082,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses and consulting fees of $334,000 and $52,000, respectively.

General and administrative expenses for the six months ended June 30, 2023 were $2,832,000 an increase of $624,000, compared to the general and administrative expenses for the six months ended June 30, 2022 of $2,208,000.

The increase in general and administrative expenses is primarily related to increased legal expenses, investor relations expenses and consulting fees of $168,000, $292,000 and $85,000, respectively.

General and administrative expenses for the three months ended September 30, 2023 were $1,428,000, an increase of $28,000, compared to the general and administrative expenses for the three months ended September 30, 2022 of $1,400,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $173,000, offset partially by reduced legal fees of $107,000.

General and administrative expenses for the nine months ended September 30, 2023 were $4,260,000, an increase of $652,000, compared to the general and administrative expenses for the nine months ended September 30, 2022 of $3,608,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses, accounting fees and legal fees of $465,000, $100,000 and $61,000, respectively.

Interest Expense, net

Interest expense, net for the three and six months ended June 30, 2023 was $37,000 and $760,000, respectively.

Interest expense, net for the three and six months ended June 30, 2022, was not significant.

The increase in interest expense, net for the three and six months ended June 30, 2023, was primarily due to the amortization of debt discounts associated with the senior secured convertible note that the Company issued in August 2022 and repaid in full on April 11, 2023.

Interest expense, net for the three and nine months ended September 30, 2023 was $52,000 and $812,000, respectively.

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

Interest expense for the three months ended September 30, 2023 was primarily due to the amortization of debt discounts associated with the short-term loan that the Company issued in September 2023.

Interest expense for the nine months ended September 30, 2023 was primarily due to the amortization of debt discounts associated with the senior secured convertible note that the Company issued in August 2022 and repaid in full on April 11, 2023.

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 issued in August 2022.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities for the three months ended June 30, 2023 was $246,000, compared to $0 for the three months ended June 30, 2022.

The change in fair value of the warrant liabilities for the three months ended June 30, 2023 was primarily due to the decrease in the price of our common stock at June 30, 2023 compared to the price of our common stock on the date of the warrant issuance as well as the decline in our common stock price from March 31, 2023, related to existing warrant liabilities.

Change in fair value of warrant liabilities for the six months ended June 30, 2023 was $5,850,000, compared to $0 for the six months ended June 30, 2022.

The change in fair value of the warrant liabilities for the six months ended June 30, 2023 was due to the issuance of warrants in February 2023 and the subsequent decrease in the price of our common stock at June 30, 2023 compared to the price of our common stock on the date of the warrant issuance as well as the decline in our common stock price from December 31, 2022, related to existing warrant liabilities.

Change in fair value of warrant liabilities for the three months ended September 30, 2023 was $284,000, compared to $274,000 for the three months ended September 30, 2022.

The change in fair value of the warrant liabilities for the three months ended September 30, 2023 was primarily due to the decrease in the price of our common stock at September 30, 2023 compared to the price of our common stock on the date of the warrant issuance as well as the decline in our common stock price from June 30, 2023, related to existing warrant liabilities.

Change in fair value of warrant liabilities for the nine months ended September 30, 2023 was $6,134,000, compared to $274,000 for the nine months ended September 30, 2022.

The change in fair value of the warrant liabilities for the nine months ended September 30, 2023 was due to the issuance of warrants in February 2023 and the subsequent decrease in the price of our common stock at September 30, 2023 compared to the price of our common stock on the date of the warrant issuance as well as the decline in our common stock price from December 31, 2022, related to existing warrant liabilities.

Loss on Debt Extinguishment

During the three and six months ended June 30, 2023, the Company recorded a loss on debt extinguishment of $837,000.

During the three and nine months ended September 30, 2023, the Company recorded a loss on debt extinguishment of $0 and $837,000.

The loss is directly related to the Company’s April 2023 repayment of the Convertible Note in the amount of $1,656,744.

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Liquidity and Capital Resources

Cash and cash equivalents as of June 30, 2023 were $2,007,000, compared to $2,897,000 as of December 31, 2022.

We incurred a net loss of $6,247,000 for the six months ended June 30, 2023 and used net cash in operating activities of $9,126,000.

We incurred a net loss of $8,012,000 for the six months ended June 30, 2022 and used net cash in operating activities of $8,307,000.

Excluding non-cash adjustments, the primary reasons for the decrease in the use of net cash from operating activities during the six months ended June 30, 2023, was related to the decrease in inventories and prepaid expenses, partially offset by a decrease 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.

Cash and cash equivalents as of September 30, 2023 were $212,000 compared to $2,897,000 as of December 31, 2022.

We incurred a net loss of $12,358,000 for the nine months ended September 30, 2023 and used net cash in operating activities of $12,101,000.

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.

Excluding non-cash adjustments, the primary reasons for the decrease in the use of net cash from operating activities during the nine months ended September 30, 2023, was related to a decrease in inventories, partially offset by an increase in accounts receivable and 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 common stock and sale of debt instruments.

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 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.

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In May 2023, we received net proceeds of approximately $1.9 million in connection with a warrant inducement.

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

In July 2023, we received net proceeds of approximately $0.6 million in connection with a warrant inducement.

In September 2023, we secured a term loan in the principal amount of $650,000 from a related party.

In October 2023, we received gross proceeds of approximately $4.8 million, prior to underwriting discounts, commissions, and offering expenses, from the issuance

of 87,000 shares of preferred stock and the issuance of 174,000 warrants to purchase preferred stock.

We will need to raise additional proceeds via the issuance of equity securities and/or the sale of debt instruments in the fourth quarter of 2023 to fund operations for fiscal year 2024.

Quantitative and Qualitative Disclosures About Market Risk.

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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