What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-20 compared with 2023-11-14 · 43 added, 93 removed, 34 unchanged (80% of the section changed)

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Cautionary Notice Regarding 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”).

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.

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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;

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;

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.

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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.

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:

complexity of installation and cost.

We believe that consumers want to experience theater quality surround sound from the comfort of their homes.

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

Further, people who rent as opposed to own may not be able to install these systems as the installation construction needed may not be permitted under a lease agreement.

Our first-generation wireless technology addresses these problems by transmitting wireless audio to each speaker at Blu-ray quality (uncompressed 24-bit audio up to 96 kHz sample rates) and emphasizing ease of setup.

To our knowledge, our custom chips and modules technology is one of the few technologies available today that can stream up to eight (8) separate wireless audio channels with low latency, removing lip-sync issues between the audio and video sources.

In addition, every speaker within a system that utilizes our technology can be synchronized to less than one microsecond, thus eliminating phase distortion between speakers.

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

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 (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.

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, sale of debt instruments, and revenue from the sale of our products.

We are an emerging technology company and our primary business focus is to enable immersive, wireless sound technology for intelligent devices and next-generation home entertainment systems.

Our first generation product, which we continue to sell to consumer electronics companies, is based on our proprietary wireless modules.

In 2023 we introduced our second generation technology, WiSA E.

WiSA E is a proprietary technology that delivers seamless integration across platforms and devices, allowing for interoperable high-quality audio.

WiSA E is System-on-Chip (SoC) agnostic, compatible with a wide range of SoCs and Wi-Fi agnostic, functioning efficiently across Wi-Fi compliant chips.

Designed to be embedded into various devices, including TVs, mobile devices, set-top boxes, and projectors it provides interoperability between WiSA E audio source devices and playback equipment such as speakers, soundbars, subwoofers, smart speakers, and headphones, ensuring cost-effectiveness without compromising quality or performance.

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.

Our condensed 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.

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.

Strategic Advisor

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, 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.

We, with our advisors, are evaluating a broad range of strategic transactions.

Potential strategic transactions 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 our assets, merger, business combination, partnership, joint venture, licensing and/or another strategic alternative.

Despite devoting 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.

Even if we enter into a definitive agreement, we may not be successful in completing a transaction or, if we complete such a transaction, it may not enhance stockholder value or deliver expected benefits.

Comhear, Inc.

Non-Binding Letter of Intent

On May 15, 2023, we announced that we have signed a non-binding letter of intent to acquire Comhear, Inc.

(“Comhear”), a developer of AI-enabled adaptive audio technology.

Under the proposed acquisition, we would acquire all shares of Comhear common stock in exchange for newly issued shares of our common stock.

The letter of intent for the proposed transaction is non-binding, and the parties intend to enter into one or more definitive agreements with respect thereto.

Completion of the transaction is subject to, among other matters, the completion of due diligence, the negotiation of definitive agreements providing for the proposed transaction, and satisfaction of various conditions to be negotiated therein and customary for transactions of the type contemplated, including, but not limited to, receipt of regulatory approvals, the provision of an audit of Comhear’s financial statements, and board of director and WiSA shareholder approvals.

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 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 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.

Comparison of the Three Months Ended March 31, 2024 and 2023

Revenue for the three months ended March 31, 2024 was $255,000 a decrease of $214,000 or 46%, compared to the revenue for the three months ended March 31, 2023 of $469,000.

The decrease was a result of lower Consumer Audio Product sales and Component revenue which decreased by $46,000 and $168,000, respectively compared to the three months ended March 31, 2023.

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

Gross Deficit and Operating Expenses

Gross Deficit

Gross deficit for the three months ended March 31, 2024 was ($83,000), an improvement of $1,170,000, compared to ($1,253,000) gross deficit for the three months ended March 31, 2023.

The gross margin as a percent of sales was (33%) for the three months ended March 31, 2024, compared to (267%) for the three months ended March 31, 2023.

The improvement in gross deficit and gross margin as a percent of sales compared to the prior period is mainly attributable to the fact that the three months ended March 31, 2023 included 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 whereas the three months ended March 31, 2024 did not have any increases to inventory reserves.

Research and Development

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.

Research and development expenses for the three months ended March 31, 2024 were $1,715,000, a decrease of $178,000 compared to the research and development expenses for the three months ended March 31, 2023 of $1,893,000.

The decrease in research and development expenses is primarily related to decreased consulting expenses of $109,000.

Sales and Marketing

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.

Sales and marketing expenses for the three months ended March 31, 2024 were $929,000, a decrease of $365,000, compared to the sales and marketing expenses for the three months ended March 31, 2023 of $1,294,000.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $174,000, and decreased consulting expenses and website expenses of $90,000 and $72,000, respectively.

General and Administrative

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.

General and administrative expenses for the three months ended March 31, 2024 were $1,431,000, an increase of $69,000, compared to the general and administrative expenses for the three months ended March 31, 2023 of $1,362,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $290,000, offset partially by deceased salary and benefit expense of $89,000 and legal fees of $110,000.

Interest Expense, net

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 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 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.

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.

Interest expense, net for the three months ended March 31, 2024 was $1,265,000 an increase of $542,000, compared to the interest expense for the three months ended March 31, 2023 of $723,000.

The increase for the three months ended March 31, 2024, was primarily due to the amortization of debt discounts associated with the January 2024 Promissory Note in the principal amount of $1,000,000 that the Company incurred in January 2024 and repaid in full in January 2024.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability for the three months ended March 31, 2024 was $8,129,000, compared to $5,604,000 for the three months ended March 31, 2023.

The change in fair value of the warrant liability for the three months ended March 31, 2024 was due to the issuance of warrants in January 2024 associated with our short term note and the issuance of warrants in connection with our February Public Offering and March 2024 Offering, offset partially by the subsequent decrease in the price of our common stock price at March 31, 2024 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, 2023, related to existing warrant liabilities.

Liquidity and Capital Resources

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.

Cash and cash equivalents as of March 31, 2024 were $2,763,000, compared to $411,000, as of December 31, 2023.

We recorded net income of $2,707,000 for the three months ended March 31, 2024 and used net cash in operating activities of $3,540,000.

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.

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, 2024, was related to a decrease in inventories and prepaid expenses and an increase in accounts payable, partially offset by 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 February 2023, we received net proceeds of approximately $5.3 million from the issuance of 3,889 shares of common stock (includes the exercise of 2,545 pre-funded warrants) and the issuance of 5,833 warrants to purchase common stock.

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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.

In October 2023, we received gross proceeds of approximately $4.8 million, prior to underwriting discounts, commissions, and offering expenses, from the issuance of 580 shares of preferred stock and the issuance of 1,160 warrants to purchase preferred stock.

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

In January 2024, we received gross proceeds of $600,000 from the issuance of promissory notes and common stock purchase warrants to certain accredited investors.

In February 2024, we received gross proceeds of approximately $10.0 million from the public offering of 1,025,600 units, with each unit consisting of one share of common stock (or pre-funded warrant in lieu thereof) and one warrant, each to purchase one (1) share of common stock.

In March 2024 we received net proceeds of approximately $2.3 million from the issuance of 417,833 shares of common stock, 93,342 pre-funded common stock warrants and the issuance of 511,175 warrants to purchase common stock.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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