What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 51 added, 41 removed, 52 unchanged (64% of the section changed)

28 unchanged sentences

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.

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.

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.

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Revenue for the three months ended June 30, 2024 was $345,000 a decrease of $80,000 or 19% compared to the revenue for the three months ended June 30, 2023 of $425,000.

The decrease was a result of lower Consumer Audio Product sales which decreased by $81,000 compared to the three months ended June 30, 2023.

The decrease in sales is primarily related to fewer products sold (due in part to a slowdown in spending on consumer electronics.)

Revenue for the six months ended June 30, 2024 was $600,000 a decrease of $294,000 or 33% compared to the revenue for the six months ended June 30, 2023 of $894,000.

The decrease was a result of lower Component revenue which decreased by $167,000 compared to the six months ended June 30, 2023, and lower Consumer Audio Product sales, which decreased by $127,000, compared to the six months ended June 30, 2023.

The decrease in overall sales is primarily related to fewer products sold (due in part to a slowdown in spending on consumer electronics.)

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Revenue for the three months ended September 30, 2024 was $1,172,000, an increase of $403,000, or 52%, compared to revenue for the three months ended September 30, 2023 of $769,000.

The increase in revenue was a result of an increase in Components sales of $726,000, partially offset by a decrease in Consumer Audio Product sales of $323,000.

Revenue for the nine months ended September 30, 2024 was $1,772,000, an increase of $109,000, or 7%, compared to the revenue for the nine months ended September 30, 2023 of $1,663,000.

The increase in revenue was a result of an increase in Component sales of $558,000, partially offset by a decrease in Consumer Audio Product sales of $449,000.

Gross Profit and Operating Expenses

Gross Profit (Deficit)

Gross profit for the three months ended June 30, 2024 was $11,000 compared to a gross deficit of ($201,000) for the three months ended June 30, 2023.

The gross margin as a percent of sales was 3% for the three months ended June 30, 2024, compared to (47%) for the three months ended June 30, 2023.

The improvement in gross profit and gross margin as a percent of sales compared to the prior period is mainly attributable to the fact that the three months ended June 30, 2023 included a $169,000 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 June 30, 2024 did not have any increases to inventory reserves.

Gross deficit for the six months ended June 30, 2024 was ($72,000), compared to a gross deficit of ($1,454,000) for the six months ended June 30, 2023.

The improvement in gross deficit between periods is mainly attributable to lower cost of revenue of sales.

The gross margin as a percent of sales was (12%) for the six months ended June 30, 2024, compared to (163%) for the six months ended June 30, 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 six months ended June 30, 2023 included a $1.4 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 six months ended June 30, 2024 did not have any increases to inventory reserves.

Gross profit for the three months ended September 30, 2024 was $226,000 compared to a gross deficit of ($1,669,000) for the three months ended September 30, 2023.

The gross margin (deficit) as a percent of sales was 19% for the three months ended September 30, 2024, compared to (217%) for the three months ended September 30, 2023.

The improvement in gross profit and gross margin as a percent of sales compared to the prior period is mainly attributable to:

(a) an increase of $403,000 in revenue between comparable periods and (b) the three months ended September 30, 2023 included a $1.4 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 September 30, 2024 included a $22,000 increase in inventory reserves.

Gross margin for the nine months ended September 30, 2024 was $154,000, compared to a gross deficit of ($3,123,000) for the nine months ended September 30, 2023.

The gross margin (deficit) as a percent of sales was 9% for the nine months ended September 30, 2024, compared to (188%) for the nine months ended September 30, 2023.

The improvement in gross profit and gross margin as a percent of sales compared to the prior period is mainly attributable to the fact that the nine months ended September 30, 2023 included a $2.8 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 nine months ended September 30, 2024 included a $22,000 increase in inventory reserves.

Research and Development

Research and development expenses for the three months ended June 30, 2024 were $1,789,000, a decrease of $144,000, compared to the research and development expenses for the three months ended June 30, 2023 of $1,933,000.

The decrease in research and development expenses is primarily related to decreased legal fees and consulting expenses of $77,000 and $68,000, respectively.

Research and development expenses for the six months ended June 30, 2024 were $3,504,000, a decrease of $322,000 compared to the research and development expenses for the six months ended June 30, 2023 of $3,826,000.

The decrease in research and development expenses is primarily related to decreased consulting expenses, which includes outside engineering, reduced legal fees and reduced stock based compensation of $165,000, $82,000 and $69,000, respectively.

Research and development expenses for the three months ended September 30, 2024 were $2,225,000, an increase of $387,000, compared to the research and development expenses for the three months ended September 30, 2023 of $1,838,000.

The increase in research and development expenses is primarily related to increased salary and benefit expense of $225,000, and increased recruiting fees and consulting expenses of $103,000 and $40,000, respectively.

Research and development expenses for the nine months ended September 30, 2024 were $5,729,000, an increase of $65,000 compared to the research and development expenses for the nine months ended September 30, 2023 of $5,664,000.

The increase in research and development expenses is primarily related to increased salary and benefit expense of $230,000 and recruiting fees of $84,000, offset partially by reduced consulting fees, legal fees and stock-based compensation of $130,000, $89,000 and $88,000, respectively.

Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2024 were $865,000, a decrease of $224,000 compared to the sales and marketing expenses for the three months ended June 30, 2023 of $1,089,000.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $134,000 and decreased website expenses of $66,000.

Sales and marketing expenses for the six months ended June 30, 2024 were $1,794,000, a decrease of $589,000 compared to the sales and marketing expenses for the six months ended June 30, 2023 of $2,383,000.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $308,000 and decreased website expenses, consulting expenses and public relations expenses of $138,000, $56,000 and $42,000, respectively.

Sales and marketing expenses for the three months ended September 30, 2024 were $983,000, a decrease of $421,000 compared to the sales and marketing expenses for the three months ended September 30, 2023 of $1,404,000.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $151,000 and decreased consulting expenses, tradeshow expenses and advertising expenses of $61,000, $44,000 and $37,000, respectively.

Sales and marketing expenses for the nine months ended September 30, 2024 were $2,777,000, a decrease of $1,010,000 compared to the sales and marketing expenses for the nine months ended September 30, 2023 of $3,787,000.

The decrease in sales and marketing expenses is primarily related to decreased salary and benefit expense of $459,000 and decreased website expenses, consulting expenses, stock-based compensation, and public relations expenses of $155,000, $117,000, $48,000 and $47,000, respectively.

General and Administrative

General and administrative expenses for the three months ended June 30, 2024 were $2,762,000, an increase of $1,292,000 compared to the general and administrative expenses for the three months ended June 30, 2023 of $1,470,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $1,015,000, which includes stock-based compensation charges of $156,000, and increased legal fees and shareholder expenses of $244,000 and $103,000, respectively, offset partially by decreased stock-based compensation expense of $165,000.

General and administrative expenses for the six months ended June 30, 2024 were $4,193,000, an increase of $1,361,000, compared to the general and administrative expenses for the three months ended June 30, 2023 of $2,832,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $1,304,000, which includes stock-based compensation charges of $156,000, and increased legal fees and shareholder expenses of $134,000 and $131,000, respectively, offset partially by decreased stock-based compensation expense of $253,000.

Interest Expense, net

Interest expense, net for the three months ended June 30, 2024 was $4,000, a decrease of $33,000 compared to the interest expense for the three months ended June 30, 2023 of $37,000.

Interest expense, net for the six months ended June 30, 2024 was $1,269,000, an increase of $509,000 compared to the interest expense for the six months ended June 30, 2023 of $760,000.

The increase in interest expense, net for the six months ended June 30, 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.

General and administrative expenses for the three months ended September 30, 2024 were $2,261,000, an increase of $833,000, compared to the general and administrative expenses for the three months ended September 30, 2023 of $1,428,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $736,000, which includes stock-based compensation charges of $156,000, and increased legal fees of $202,000, offset partially by decreased stock-based compensation expense of $128,000.

General and administrative expenses for the nine months ended September 30, 2024 were $6,454,000, an increase of $2,194,000, compared to the general and administrative expenses for the three months ended September 30, 2023 of $4,260,000.

The increase in general and administrative expenses is primarily related to increased investor relations expenses of $1,728,000, which includes stock-based compensation charges of $312,000, and increased legal fees $336,000, offset partially by decreased stock-based compensation expense of $381,000.

Interest Income (Expense), net

Interest income, net for the three months ended September 30, 2024 was $9,000 compared to net interest expense of $52,000 for the three months ended September 30, 2023, a net change of $61,000.

Interest expense, net for the nine months ended September 30, 2024 was $1,260,000, an increase of $448,000 compared to the interest expense for the nine months ended September 30, 2023 of $812,000.

The increase in interest expense, net for the nine months ended September 30, 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 June 30, 2024 was a loss of $37,255,000, compared to a gain of $246,000 for the three months ended June 30, 2023.

The change in fair value of the warrant liability for the three months ended June 30, 2024 was due to the issuance of additional warrants to purchase 5,602,693 shares of common stock and the subsequent valuing of such warrants.

The additional warrants were issued as a result of provision in certain of the warrant agreements that was triggered following the Company’s reverse stock split that occurred in April 2024.

Change in fair value of warrant liability for the six months ended June 30, 2024 was a loss of $29,126,000 compared to a gain of $5,850,000 for the six months ended June 30, 2023.

The change in fair value of the warrant liability for the six months ended June 30, 2024 was due to the issuance of additional warrants to purchase 5,602,693 shares of common stock and the subsequent valuing of such warrants.

Change in fair value of warrant liability for the three months ended September 30, 2024 was a gain of $6,000, compared to a gain of $284,000 for the three months ended September 30, 2023.

The change in fair value of the warrant liabilities for the three months ended September 30, 2024 was primarily due to the decrease in the price of our common stock at September 30, 2024 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, 2024, related to existing warrant liabilities.

Change in fair value of warrant liability for the nine months ended September 30, 2024 was a loss of $29,120,000 compared to a gain of $6,134,000 for the nine months ended September 30, 2023.

The change in fair value of the warrant liability for the nine months ended September 30, 2024 was due to the issuance of additional warrants to purchase 5,602,693 shares of common stock and the subsequent valuing of such warrants.

The additional warrants were issued as a result of provision in certain of the warrant agreements that was triggered following the Company’s reverse stock split that occurred in April 2024.

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, 2024, the Company recorded a loss on debt extinguishment of $0.

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.

Other Income (Expense), net

Other income, net for the three months ended September 30, 2024 was $136,000 compared to net interest expense of $4,000 for the three months ended September 30, 2023, a net change of $140,000.

Other income, net for the nine months ended September 30, 2024 was $136,000, an increase of $143,000 compared to the other expense, net for the nine months ended September 30, 2023 of $7,000.

The increase in other income, net for the three and nine months ended September 30, 2024, was due to the receipt of an Employee Retention Credit (“ERC”) refund of $141,000, net of fees.

The ERC refund was for the three month period ended June 30, 2020.

Liquidity and Capital Resources

Cash and cash equivalents as of June 30, 2024 were $6,113,000 compared to $411,000, as of December 31, 2023.

We recorded a net loss of $39,958,000 for the six months ended June 30, 2024 and used net cash in operating activities of $9,045,000.

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.

Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the six months ended June 30, 2024, was related to an increase in prepaid expenses and decrease in accounts payable, partially offset by a 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.

Cash and cash equivalents as of September 30, 2024 were $3,921,000 compared to $411,000, as of December 31, 2023.

We recorded a net loss of $45,050,000 for the nine months ended September 30, 2024 and used net cash in operating activities of $13,276,000.

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.

Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the nine months ended September 30, 2024, was related to an increase in prepaid expenses and inventories, which was partially offset by a decrease in accounts payable.

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

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.

6 unchanged sentences

On May 17, 2024, we received net proceeds of approximately $2.1 million from the issuance of 675,000 shares of common stock and the issuance of 675,000 warrants to purchase common stock.

In September 2024, we received net proceeds of approximately $2.4 million from the exercise of 1,193,721 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 fourth quarter of 2024 to fund operations for fiscal year 2025.

4 unchanged sentences

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