WiSA Technologies(WISA) - 2020 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements (unaudited) Presents unaudited financial statements, showing a $9.1 million net loss and cash increase to $9.1 million from financing Condensed Consolidated Balance Sheets Balance sheet shows significant financial improvement, with cash increasing to $9.1 million and total assets growing to $13.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,104 | $298 | | Total current assets | $12,789 | $4,016 | | Total assets | $13,026 | $4,222 | | Liabilities & Equity | | | | Total current liabilities | $1,956 | $2,700 | | Total liabilities | $3,164 | $3,111 | | Total stockholders' equity | $9,285 | $594 | | Total liabilities & equity | $13,026 | $4,222 | Condensed Consolidated Statements of Operations Revenue increased 45% in Q3 and 11% for nine months, with net loss widening to $9.1 million from higher costs Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $607 | $419 | $1,366 | $1,236 | | Gross profit | $104 | $32 | $179 | $112 | | Loss from operations | $(2,985) | $(2,679) | $(7,654) | $(8,062) | | Net loss | $(2,990) | $(2,708) | $(9,068) | $(8,097) | | Net loss per share | $(0.39) | $(2.75) | $(2.15) | $(9.29) | Condensed Consolidated Statements of Cash Flows Operating cash outflow improved to $7.5 million, with $16.3 million from financing, leading to $8.8 million net cash increase Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,499) | $(8,454) | | Net cash used in investing activities | $(15) | $(31) | | Net cash provided by financing activities | $16,320 | $5,564 | | Net increase (decrease) in cash | $8,806 | $(2,934) | | Cash at end of period | $9,104 | $284 | Notes to Condensed Consolidated Financial Statements Notes detail business, policies, and financial condition, highlighting $196.7 million accumulated deficit and financing activities - The company has incurred net operating losses each year since inception and has an accumulated deficit of $196.7 million as of September 30, 2020, raising substantial doubt about its ability to continue as a going concern[36] - In April 2020, the company effected a 1-for-20 reverse stock split to regain compliance with Nasdaq's minimum bid price requirement, with all share and per-share data retroactively adjusted[63] - The company received an $847,000 loan under the Paycheck Protection Program (PPP) on May 3, 2020[82] - A legal dispute with Alexander Capital, L.P. was settled on May 14, 2020, for a one-time cash payment of $125,000 and the issuance of 50,000 shares of common stock, resulting in a charge of $236,000[139][140] - The company regained compliance with Nasdaq's minimum bid price, stockholders' equity, and audit committee composition rules during 2020[32][34][35] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting 45% Q3 revenue growth, expense changes, and strengthened liquidity from $16 million financing Results of Operations Revenue increased 45% in Q3 and 11% for nine months, with R&D down 22%, S&M down 4%, and G&A up 35% Year-over-Year Change in Revenue and Operating Expenses (Nine Months Ended Sep 30) | Item | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $1,366 | $1,236 | +11% | | Research and development | $3,278 | $4,195 | -22% | | Sales and marketing | $2,043 | $2,119 | -4% | | General and administrative | $2,512 | $1,860 | +35% | Liquidity and Capital Resources Cash increased to $9.1 million from $0.3 million due to $16.2 million in financing, though going concern doubt persists - Cash and cash equivalents increased to $9.1 million as of September 30, 2020, from $298,000 as of December 31, 2019[210] - The increase in cash was driven by significant financing activities, including raising net proceeds of $16.2 million from equity offerings, $1.4 million from convertible notes, and $847,000 from a PPP loan[210] - Due to a history of generating losses from operations, there is substantial doubt about the company's ability to continue as a going concern[212] Potential Impacts of the Novel Coronavirus (COVID-19) COVID-19 caused demand volatility, with Q2 decrease and Q3 increase, leading to expected continued sales volatility - The company observed fluctuating demand, with a decrease in Q2 2020 due to retail closures and an increase in Q3 2020 as retailers reopened[185] - Management expects continued sales volatility due to the unpredictable operational needs of customers during the pandemic[186] - The company has implemented remote work policies and other safety measures for essential on-site employees[194] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing market risk disclosures in this report - As a smaller reporting company, Summit Wireless is exempt from providing quantitative and qualitative disclosures about market risk in its Form 10-Q[214] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2020, with no material changes during the quarter - Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were not effective[216] - No changes in internal control over financial reporting occurred during the third quarter of 2020 that materially affected, or are reasonably likely to materially affect, the company's internal controls[217] PART II. OTHER INFORMATION Legal Proceedings No pending or threatened legal actions are expected to have a material adverse effect on the company's business or financial condition - The company is not currently involved in any legal proceedings that could have a material adverse effect on its business[220] Risk Factors As a smaller reporting company, the company is exempt from providing risk factor disclosures in this quarterly report - The company is exempt from providing risk factors in this report as it qualifies as a smaller reporting company[221] Unregistered Sales of Equity Securities and Use of Proceeds On July 27, 2020, 237,824 Restricted Stock Units were granted to executive officers under the 2020 Stock Incentive Plan - On July 27, 2020, the company granted 237,824 RSUs to executive officers, including 145,000 to the CEO, 61,824 to the CFO, and 31,000 to the CAO[223] - The RSUs were issued as unregistered securities in reliance on the exemption from registration under Rule 701 of the Securities Act[223] Other Information A settlement agreement was reached on November 9, 2020, to resolve a registration rights dispute, involving warrant amendments and new share issuance - On November 9, 2020, the company settled a dispute with investors from the February 2020 private placement regarding registration rights[227] - As part of the settlement, the company amended the original warrants to lower the exercise price to $2.55 and issued additional shares and warrants to the investors[227] Exhibits This section lists exhibits filed with the Form 10-Q, including warrant amendments, settlement agreements, a new lease, and SOX certifications - The report includes exhibits such as forms of warrant amendments, settlement agreements, a new lease agreement, and Sarbanes-Oxley certifications[229]