What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-04-01 compared with 2023-03-17 · 94 added, 94 removed, 70 unchanged (73% of the section changed)

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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.”

Our Common Stock is currently listed on the Nasdaq Capital Market under the symbol “WISA.”

As of March 27, 2024, there were approximately 125 holders of record of our Common Stock.

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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”).

Any determination to pay dividends in the future will be at the discretion of 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.

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Recent Sales of Unregistered Securities

The share and per share information included in the descriptions of the below transactions have been adjusted to give effect to the 1-for-100 reverse split of the Company’s outstanding shares of common stock, effective on January 26, 2023 and which began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading on January 27, 2023:

August 2022 Private Placement

On August 15, 2022, the Company completed a private placement (the “August 2022 Private Placement”) of a senior secured convertible instrument (the “August 2022 Note”) and a warrant (the “August 2022 Warrant”) to purchase 20,970 shares of Common Stock at an exercise price of $99.70 per share.

The August 2022 Note and August 2022 Warrant were issued pursuant to a securities purchase agreement (the “August 2022 Purchase Agreement”), entered into as of August 15, 2022, by and between the Company and an institutional investor (the “August 2022 Investor”).

The August 2022 Private Placement resulted in gross proceeds of $3,000,000, before fees and other expenses associated with the transaction, including but not limited to, a $105,000 commitment fee payable to the

August 2022 Investor.

Additionally, the Company agreed to issue to Maxim Group LLC, the placement agent for the August 2022 Private Placement, in consideration for $100 in cash, a warrant to purchase up to an aggregate of 1,944 shares of Common Stock at an exercise price of $99.70 per share, subject to adjustment.

Effective August 24, 2022, the Company and the August 2022 Investor agreed to amend Section 3.1(b) of the August 2022 Note to provide that the Conversion Price (as defined in the August 2022 Note) could not be lower than $0.50 (the “Floor Price”) until stockholder approval has been obtained, after which stockholder approval for the Floor Price may be reduced to no lower than $0.25, subject to adjustment pursuant to the terms of the August 2022 Note.

The changes were effected by cancellation of the August 2022 Note and the issuance of a replacement senior secured convertible note (the “New Convertible Note”) to the August 2022 Investor.

The New Convertible Note contains identical terms as the August 2022 Note, except for the amendment to the Section 3.1(b) of the August 2022 Note.

December 2022 Issuance of Additional Warrants

On November 28, 2022, the Company entered into a waiver of rights with the August 2022 Investor, pursuant to which the August 2022 Investor agreed to waive certain prohibitions under the August Purchase Agreement with respect to the December Public Offering in exchange for the issuance by the Company, on the closing date of the December Public Offering, of the Additional Warrants.

On December 1, 2022, the Company issued 53,571 Series A Warrants and 53,571 Series B Warrants to the August 2022 Investor.

The Company’s obligation to issue shares of Common Stock underlying the Additional Warnts was expressly conditioned upon stockholder approval of all of the transactions contemplated by the August 2022 Purchase Agreement, and the transaction documents related thereto.

Such stockholder approval was obtained at the Company’s special meeting held on January 17, 2023.

Unless otherwise stated, the sale and the issuance of the foregoing notes, warrants and shares of Common Stock were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act.

February 2023 Warrant Issuances

On February 3, 2023, the Company issued Common Stock purchase warrants exercisable for an aggregate of up to 874,959 shares of Common Stock, at an exercise price of $10.49 per share.

March 2023 Warrant Issuances

On March 29, 2023, the Company issued Common Stock purchase warrants exercisable for an aggregate of up to 1,674,414 shares of Common Stock, at an exercise price of $1.91 per share.

April 2023 Warrant Issuances

On April 12, 2023, the Company issued Common Stock purchase warrants exercisable for an aggregate of up to 1,486,132 shares of Common Stock, at an exercise price of $1.41 per share.

May 2023 Warrant Inducements

On May 15, 2023, the Company entered into letter agreements, or the May 2023 Inducement Agreements, with holders of Common Stock purchase warrants previously issued by the Company to the holders pursuant to a private placement conducted concurrently with a registered direct public offering of the Company’s securities that closed on April 12, 2023, and which were still outstanding and had not been previously exercised, or the April 2023 Existing Warrants.

Pursuant to the May 2023 Inducement Agreements, as an inducement and in consideration for a holder’s exercise of the April 2023 Existing Warrants for some or all of the shares of Common Stock available thereunder, the Company delivered to each such holder new Common Stock purchase warrants, or the May 2023 New Warrants, to purchase a number of shares of Common Stock equal to 200% of the number of shares of Common Stock issued to such holder in connection with its exercise of its April 2023 Existing Warrants.

The May 2023 New Warrants are immediately exercisable upon issuance at an exercise price of $1.33 per share, have an expiration date of May 17, 2028 and are exercisable on a cashless basis if the shares of Common Stock issuable upon exercise of the May 2023 New Warrants have not been registered by the Company on a registration statement on or before six (6) months after the date of issuance and there is no currently effective registration statement covering the May 2023 New Warrants at the time of exercise.

Pursuant to the May 2023 Inducement Agreements, holders agreed to exercise April 2023 Existing Warrants for an aggregate of 1,486,132 shares of Common Stock, resulting in gross proceeds to the Company of approximately $2.1 million before deducting fees and other offering expenses payable by us.

July 2023 Warrant Inducements

On July 26, 2023, the Company entered into warrant exercise inducement offer letters (the “July Inducement Letters”) with holders of the May 2023 New Warrants pursuant to which the Company agreed to issue new inducement warrants (the “July Inducement Warrants”) to purchase a number of shares of Common Stock equal to 100% of the number of shares of Common Stock received upon exercise of the May 2023 New Warrants during the period provided for in the July Inducement Letters, with such July Inducement Warrants to be issued on substantially the same terms as the May 2023 New Warrants (“the July 2023 Warrant Inducement Transaction”).

The holders exercised 510,000 of the May 2023 New Warrants pursuant to certain of the July Inducement Letters, and the Company received aggregate gross proceeds of approximately $678,000 from such exercises.

In exchange for the exercises of the May 2023 New Warrants, the Company issued July Inducement Warrants exercisable for an aggregate of up to 510,000 shares of Common Stock at an exercise price of $1.29 per share.

The inducement offering period closed at 5:00 p.m.

EDT on August 8, 2023.

Each July Inducement Warrant was immediately exercisable upon issuance and will expire on the fifth anniversary of its issuance.

The exercise price of the July Inducement Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s Common Stock.

The July Inducement Warrants are callable by the Company at a redemption price of $0.50 per July Inducement Warrant, provided that the resale of the shares of Common Stock underlying the July Inducement Warrants are then registered or may be resold under Rule 144 under the Securities Act.

December 2023 Warrant Inducements

On December 5, 2023, the Company entered into warrant inducement letter agreements (collectively the “Inducement Agreements”) with certain holders (“Holders”) of the Company’s Series B Convertible Preferred Stock , par value $0.0001 per share (the “Series B Preferred Stock”) purchase warrants (the “Existing Warrants”) pursuant to which, the holders of the Existing Warrants agreed to a reduced exercise price of $35.72 per share of Series B Convertible Preferred Stock, while maintaining the original fixed conversion price of $0.4147, upon the exercise of any Existing Warrants during the period from the date of the Inducement Agreements until the later of (i) the day immediately preceding the Stockholder Approval Date (as defined in the New Warrant referenced below), or (ii) January 15, 2024.

The aggregate gross proceeds to be received by the Company will depend on the number of Existing Warrants actually exercised by the Holders.

If all of the Existing Warrants are exercised in accordance with the Inducement Agreements, the Company anticipates receiving aggregate gross proceeds of up to approximately $6.0 million from the exercise of the Existing Warrants before deducting financial advisory fees and other expenses payable by the Company.

There is no guarantee that all of the Existing Warrants will be exercised by the Holders in accordance with the Inducement Agreements.

As of February 2, 2024, the Holders have exercised Existing Warrants to purchase 87,657 shares of Series B Preferred Stock, and we have received approximately $3.1 million in gross proceeds from such exercises.

In consideration of each Holders’ agreement to exercise the Existing Warrants in accordance with the applicable Inducement Agreement, the Company agreed to issue each such Holder the New Warrants, to purchase New Warrant Shares at a per share exercise price equal to $0.1482, which New Warrants will contain 4.99/9.99% beneficial ownership limitations, be exercisable at any time on or after the Stockholder Approval Date and expire five years from the Stockholder Approval Date.

2024 Bridge Note and Warrant

On January 22, 2024, the Company entered into the 2024 Bridge Purchase Agreements, with the Holders, pursuant to which the Company agreed to issue to the Holders the 2024 Bridge Promissory Notes and the 2024 Bridge Warrants to purchase up to an aggregate of 10,000,000 shares of the Company’s Common Stock, in consideration for $600,000.

Each of the 2024 Bridge Promissory Notes matures on the earlier to occur of:

(i) July 17, 2024 and (ii) the full or partial exercise of certain Series B Preferred Stock purchase warrants currently held by the Holders, issuable for at least 9,322 shares of the Series B Preferred Stock upon such full or partial exercise.

The 2024 Bridge Promissory Notes do not bear interest except upon the occurrence of an event of default.

The 2024 Bridge Promissory Notes are not convertible into shares of Common Stock or Series B Preferred Stock.

The 2024 Bridge Warrants are not exercisable until after the date that stockholder approval is obtained to approve each of (i) the issuance of the 2024 Bridge Warrant Shares issuable upon the exercise of the 2024 Bridge Warrants, as may be required by the applicable rules and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Certificate of Incorporation to increase the authorized share capital of the Company to an amount sufficient to cover the 2024 Bridge Warrant Shares or to effectuate a reverse stock split whereby the authorized share capital is not split and is sufficient to cover the 2024 Bridge Warrant Shares (and such reverse split is effectuated) (“Bridge Warrant Stockholder Approval”), and will expire on the fifth (5 th ) anniversary of the date on which Bridge Warrant Stockholder Approval is received and deemed effective under Delaware law.

The exercise price of the 2024 Bridge Warrants is subject to downward adjustment, upon any subsequent transaction at a price lower than the exercise price then in effect and standard adjustments in the event of certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate changes.

The exercise of the 2024 Bridge Warrants is subject to beneficial ownership limitations such that each Holder may not exercise the 2024 Bridge Warrant to the extent that such exercise would result in the Holder being the beneficial owner in excess of 4.99% (or, upon election of the Holder, 9.99%) of the outstanding shares of Common Stock, which beneficial ownership limitation may be increased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

The closing of the 2024 Bridge Private Placement occurred on January 23, 2024, pursuant to which, the Company issued the 2024 Bridge Promissory Notes and the 2024 Bridge Warrants to the Holders in accordance with the 2024 Bridge Purchase Agreements.

Unless otherwise stated, 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 and Rule 506 of Regulation D promulgated under the Securities Act, or Regulation D.

We made this determination based on the representations of each investor 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 securities issued in reliance upon these exemptions.

Management Discussion and Analysis of Financial Condition and Results of Operations.

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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 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.

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 (or 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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Our first-generation technology shows that wireless home theater systems are viable home audio solutions for the average consumer and audio enthusiast alike.

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 WiSA 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.

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.

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.

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 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.

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.

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 year ended December 31, 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.

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Please see Note 1 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, 2023 and 2022

Revenue for the year ended December 31, 2023 was $2,083,000 a decrease of $1,282,000 or 38%, compared to the revenue of $3,365,000 for the year ended December 31, 2022.

The decrease was a result of lower Component revenue which decreased by $3,189,000, compared to the year ended December 31, 2021, offset partially by Consumer Audio Product sales which increased by $13,000, compared to the year ended December 31, 2021.

The decrease in Component revenue was due in part to (i) a slow-down in consumer spending on consumer electronics which resulted in excess end product inventory at retailers and (ii) supply chain interruptions experienced by certain of 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 year ended December 31, 2022 was $395,000 a decrease of $1,469,000 compared to $1,864,000 gross profit for the year ended December 31.

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

The gross margin as a percent of sales was 11.7% for the year ended December 31, 2022 compared to 28.5% for the year ended December 31, 2021, a decrease of 16.8 points.

The decrease in gross margin as a percent of sales was due in part to (i) reduced sales volumes in comparison to the fixed portion of costs included in our manufacturing and (ii) the Company’s fourth quarter 2022 price reductions of its consumer audio products in response to the slow down in consumer spending on consumer electronics.

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 $1,269,000 and lower Consumer Audio Product revenue of $13,000, when compared to the year ended December 31, 2022.

Gross Profit (Deficit) and Operating Expenses

Gross Profit (Deficit)

Gross deficit for the year ended December 31, 2023 was $3,457,000 a decrease of $3,852,000 compared to a gross profit of $395,000 for the year ended December 31.

The gross margin (deficit) as a percent of sales was (166%) for the year ended December 31, 2023, compared to 12% for the year ended December 31, 2022.

The decrease in gross profit and gross margin as a percent of sales is mainly attributable to a $2.9 million increase in inventory reserves primarily attributable to our semiconductor chips as they were determined to be excess and 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 year ended December 31, 2023 were $7,456,000, an increase of $312,000, compared to expenses of $7,144,000 for the year ended December 31, 2022.

The increase in research and development expenses is primarily related to increased salary and benefit expense of $874,000, increased stock-based compensation, professional and consulting expense and recruiting fees of $106,000, $783,000 and $95,000, respectively.

The increase in research and development expenses is primarily related to increased salary and benefit expense of $152,000, increased consulting expenses of $167,000, which includes outside engineering and direct materials used in research and development of $34,000, partially offset by reduced recruiting fees of $108,000.

Sales and Marketing

Sales and marketing expenses for the year ended December 31, 2022 were $6,140,000, an increase of $2,017,000, compared to expenses of $4,123,000 for the year ended December 31, 2021.

The increase in sales and marketing expenses is primarily related increased salary and benefit expenses of $336,000, increased stock-based compensation, professional and consulting expenses, advertising and public relation expenses and tradeshow expenses of $286,000, $283,000, $808,000, $69,000, respectively.

Sales and marketing expenses for the year ended December 31, 2023 were $5,177,000, a decrease of $963,000 compared to expenses of $6,140,000 for the year ended December 31, 2022.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $210,000, and decreased advertising expenses and website expenses of $560,000 and $186,000, respectively.

General and Administrative

General and administrative expenses for the year ended December 31, 2023 were $5,367,000, an increase of $212,000, compared to expenses of $5,155,000 for the year ended December 31, 2022.

The increase in general and administrative expenses is primarily related to increased stock-based compensation, professional and consulting expenses and board fees of $227,000, $653,000 and $85,000, respectively.

The increase in general and administrative expenses is primarily related to increased investor relations fees of $528,000, partially offset by reduced consulting fees and legal fees of $95,000 and $60,000, respectively.

Interest Expense, net

Interest expense, net for the year ended December 31, 2023 was $932,000 compared to $898,000 for the year ended December 31, 2022.

The increase of $889,000 in interest expense, net for the year ended December 31, 2022, 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.

Minimal interest expense, net for the year ended December 31, 2021, was primarily related to interest accrued on the Paycheck Protection Loan which was forgiven in the third quarter of 2021.

Interest expense for the year ended December 31, 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 and the amortization of debt discounts associated the short-term loan that the Company issued in September 2023 that was repaid in full on December 7, 2023.

Interest expense for the year ended December 31, 2022 was primarily due to the amortization of debt discounts associated with the senior secured convertible note that the Company issued in August 2022.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability for the year ended December 31, 2023 was approximately $4,510,000 compared to $2,852,000 for the year ended December 31, 2022.

The change in fair value of the warrant liability for the year ended December 31, 2022 was due to the issuance of warrants during December 2022 associated with our stock offering and the subsequent decrease in our common stock price at year end compared to the price of our stock on the date of the warrant issuance.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability for the year ended December 31, 2022 was approximately $47,000, compared to $0 for the year ended December 31, 2021.

The change in fair value of the derivative liability for the year ended December 31, 2022 was due to the decrease in our common stock price.

Gain on Forgiveness of Paycheck Protection Program Loan

We recorded a gain of $859,000 due to the forgiveness of the Paycheck Protection Loan for the year ended December 31, 2021.

No such forgiveness occurred during the year ended December 31, 2022.

Warrant Inducement Expense

Warrant inducement expense was $1,146,000 for the year ended December 31, 2021.

Such warrant inducement expense represents the fair value of warrants issued to warrant holders in connection with a solicitation of such warrant holders to exercise their outstanding warrants during the year ended December 31, 2021.

No such inducement expense occurred during the year ended December 31, 2022.

The change in fair value of the warrant liability for the year ended December 31, 2023 was due to the issuance of warrants during the year ended December 2023 associated with our common stock and Series B Preferred Stock offerings and the subsequent decrease in our common stock price at year end compared to the price of our stock on the date of the warrants were issued.

Loss on Debt Extinguishment

During the year ended December 31, 2023, the Company recorded a loss on debt extinguishment of $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.

The repayment of the entirety of the outstanding balance of such note, included the unpaid principal, interest through the payoff date, and a pre-payment premium of $276,000.

The loss also includes the expensing of the related unamortized debt discounts totaling $894,000, offset partially by a $333,000 gain on termination of a derivative liability that was established in connection with the Convertible Note.

Deemed Dividend on Exchange of Convertible Preferred Stock for Common Stock

During the year ended December 31, 2021, the Company recorded a deemed dividend of $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 the year ended December 31, 2022.

During the year ended December 31, 2023, the Company recorded a deemed dividend of $6,360,000, which was primarily related to the accretion upon the conversion of 110,278 shares of Series B Preferred Stock to 26,592,199 shares of common stock.

No such deemed dividend occurred during the year ended December 31, 2022.

Liquidity and Capital Resources

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For the year ended December 31, 2022, we used net cash in operating activities of $17,514,000.

Excluding the net loss and non-cash adjustments, the increase in the use of net cash from operating activities during the year ended December 31, 2022, was primarily related to the increase in inventories, partially offset by an increase in accounts payable.

On August 15, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), by and between the Company and an institutional investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor the Convertible Note and a warrant (the “Warrant”) to purchase up to 20,970 shares of the Company’s common stock, at an exercise price of $99.70 per share (the “Exercise Price”), in consideration for $3,000,000.

Pursuant to the Purchase Agreement, upon the closing of the private placement of the Convertible Note and Warrant, pursuant to which Maxim acted as placement agent (the “Private Placement”), the Company received gross proceeds of $3,000,000.

After the deduction of banker fees, commitment fees and other expenses associated with the transaction, the Company received net proceeds of $2,483,000.

On August 24, 2022, the Company and the Investor agreed to amend Section 3.1(b) of the Convertible Note to provide that the Conversion Price (as defined in the Convertible Note) could not be lower than $0.50 (the “Floor Price”) until stockholder approval had been obtained, after which stockholder approval the Floor Price may be reduced to no lower than $0.25, subject to adjustment pursuant to the terms of the August 2022 Note.

The changes were effected by cancellation of the Convertible Note and the issuance of a replacement senior secured convertible note (the “New Convertible Note”) to the Investor.

The New Convertible Note contains identical terms as the Convertible Note, except for the amendment to the Section 3.1(b).

The Convertible Note matures on August 15, 2024, does not bear interest and ranks senior to the Company’s existing and future indebtedness and is secured to the extent and as provided in the security agreements entered into between the Investor and the Company.

The Convertible Note is convertible in whole or in part at the option of the Investor into shares of Common Stock (the “Conversion Shares”) at the Conversion Price (as defined in the Convertible Note) at any time following the date of issuance of the Convertible Note.

As of December 31, 2022, the Convertible Note had an outstanding principal amount of $2,089,000.

On December 1, 2022, WiSA consummated a public offering (the “Offering”) of an aggregate of 504,000 units (the “Units”) and 36,000 pre-funded units (the “Pre-Funded Units”) at an effective public offering price of $14.00 per Unit, resulting in aggregate gross proceeds of approximately $7.6 million.

Each Unit consisted of (i) one share (the “Shares”) of common stock, par value $0.0001 per share (“Common Stock”), (ii) one Series A Warrant (the “Series A Warrants”), and (iii) one Series B Warrant (the “Series B Warrants” and, together with the Series A Warrants, the “Warrants”), each such Warrant being exercisable from time to time for one Share at an exercise price of $14.00 per share.

Each Pre-Funded Unit consisted of (i) one pre-funded warrant (the “Pre-Funded Warrants”), each such Pre-Funded Warrant being exercisable from time to time for one Share, (ii) one Series A Warrant and (iii) one Series B Warrant.

The Warrants are immediately exercisable for one Share at an exercise price of $14.00 per share, and will expire five (5) years after the date of issuance.

The Pre-Funded Warrants were immediately exercisable for one Share at an exercise price of $0.10 per share, and as of December 31, 2022 were exercised in full with no Pre-Funded Warrants remaining outstanding.

We raised approximately $6.4 million in net proceeds from the Offering.

Excluding the net loss and non-cash adjustments, the decrease in the use of net cash from operating activities during the year ended December 31, 2023, was primarily related to the decrease in inventories.

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 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 received net proceeds of approximately $1.0 million through the issuance of common stock and warrants.

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

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.

In December 2023, we received gross proceeds of approximately $2.1 million in connection with the Warrant Inducement Transaction.

We will need to raise additional proceeds via the issuance of equity securities and/or the sale of debt instruments in the first quarter of 2024 to fund operations for the second, third and fourth quarters of fiscal year 2024 (See Note 11 – Subsequent Events in Notes to Consolidated Financial Statements).

Going Concern

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As of December 31, 2023, we had cash and cash equivalents of $0.4 million and reported net cash used in operations of $14.8 million during the year ended December 31, 2023.

In September 2022, we entered into the ATM Program.

As of December 31, 2022, the Company has not sold any shares of common stock under the ATM Program and the ATM Program was subsequently terminated in January 2023 (See Note 11 – Subsequent Events for additional information).

We expect operating losses to continue in the foreseeable future because of additional costs and expenses related to research and development activities, plans to expand our product portfolio, and increase our market share.

Our ability to transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure.

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

Based on current operating levels, we will need to raise additional funds during the next 12 months by selling additional equity or incurring debt (See Note 11 – Subsequent Events for additional information).

To date, we have funded our operations primarily through sales of its securities in public markets, proceeds from the exercise of warrants to purchase common stock and the sale of convertible

Additionally, future capital requirements will depend on many factors, including the rate of revenue growth, the selling price of our products, the expansion of sales and marketing activities, the timing and extent of spending on research and development efforts and the continuing market acceptance of our products.

These factors raise substantial doubt about our ability to continue as a going concern.

Management intends to raise additional funds through the issuance of equity securities or debt.

There can be no assurance that, in the event we requires additional financing, such financing will be available at terms acceptable to us, 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 our ability to achieve our intended business objectives.

As a result, the substantial doubt about our ability to continue as a going concern has not been alleviated.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

To date, the Company has funded its operations primarily through issuance of equity securities and proceeds from the exercise of warrants to purchase common stock and the sale of debt instruments.

Additionally, future capital requirements will depend on many factors, including the rate of revenue growth, the selling price of the Company’s products, the expansion of sales and marketing activities, the timing and extent of spending on research and development efforts and the continuing market acceptance of the Company’s products.

These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of this prospectus.

Management of the Company intends to raise additional funds through the issuance of equity securities or debt.

There can be no assurance that, in the event the Company requires additional financing, 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.

As a result, the substantial doubt about the Company’s ability to continue as a going concern has not been alleviated.

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

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What changed 10-K

Item 5. Market for Registrant’s Common Equity