UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2022

	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to _______________.

Commission File Number: 001-38608

WISA Technologies, Inc.

(Exact name of registrant as specified in its charter)


Delaware		30-1135279
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15268 NW Greenbrier Pkwy

Beaverton, OR 97006

(Address of principal executive offices) (Zip Code)

(408) 627-4716

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	WISA	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check-mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of November 16, 2022 is 17,119,353.

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WISA TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended September 30, 2022

	Page Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3. Defaults Upon Senior Securities	34
Item 4. Mine Safety Disclosures	34
Item 5. Other Information	34
Item 6. Exhibits	35
SIGNATURES	36

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	September 30, 2022		December 31, 2021
	(unaudited)		(1)
Assets
Current Assets:
Cash and cash equivalents	$	2,644	$	13,108
Accounts receivable		237		214
Inventories		7,284		4,780
Prepaid expenses and other current assets		1,033		1,086
Total current assets		11,198		19,188
Property and equipment, net		198		162
Other assets		174		41
Total assets	$	11,570	$	19,391

Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	2,623	$	1,549
Accrued liabilities		1,239		1,416
Total current liabilities		3,862		2,965
Convertible notes payable, net		1,277		—
Derivative liability		286		—
Warrant liability		719		8
Other liabilities		74		41
Total liabilities		6,218		3,014

Commitments and contingencies (Note 8)
Series A 8% Senior Convertible Preferred stock, par value $0.0001; 0 shares authorized and outstanding as of September 30, 2022; 1,250,000 shares authorized; 0 shares outstanding as of December 31, 2021(liquidation preference of $0)		—		—
Stockholders’ Equity:
Common stock, par value $0.0001; 200,000,000 shares authorized; 17,119,353 and 15,819,059 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		2		2
Additional paid-in capital		230,181		228,578
Accumulated deficit		(224,831)		(212,203)
Total stockholders’ equity		5,352		16,377
Total liabilities, convertible preferred stock and stockholders’ equity	$	11,570	$	19,391

(1)	The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated balance sheet as of that date.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ended September 30, 2022 and 2021

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Revenue, net	$	937	$	1,807	$	2,449	$	4,541
Cost of revenue		807		1,301		2,069		3,281
Gross profit		130		506		380		1,260

Operating Expenses:
Research and development		1,939		1,322		5,359		3,800
Sales and marketing		1,539		1,021		4,165		2,870
General and administrative		1,400		1,081		3,608		3,037
Total operating expenses		4,878		3,424		13,132		9,707
Loss from operations		(4,748)		(2,918)		(12,752)		(8,447)

Interest expense		(173)		(3)		(174)		(9)
Change in fair value of warrant liability		274		—		274		—
Gain on forgiveness of Paycheck Protection Program loan		—		859		-		859
Other (expense) income		(2)		1		(7)		(6)
Warrant inducement expense		—		—		—		(1,146)
Loss before provision for income taxes		(4,649)		(2,061)		(12,659)		(8,749)
Provision for income taxes		—		—		2		2
Net loss		(4,649)		(2,061)		(12,661)		(8,751)
Convertible preferred stock dividend		—		—		—		(34)
Deemed dividend on exchange of convertible preferred stock for common stock		—		—		—		(1,192)
Net loss attributable to common stockholders	$	(4,649)	$	(2,061)	$	(12,661)	$	(9,977)
Net loss per common share - basic and diluted	$	(0.31)	$	(0.15)	$	(0.85)	$	(0.86)
Weighted average number of common shares used in computing net loss per common share		15,070,489		13,917,295		14,975,121		11,600,875

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

For the three and nine months ended September 30, 2022 and 2021

(in thousands, except share and per share data)

(unaudited)



											Total
	Convertible Preferred Stock			Common Shares			Additional		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of December 31, 2021	—		—	15,819,059	$	2	$	228,578	$	(212,203)	$	16,377
ASC 842 adoption adjustment	—		—	—		—		—		33		33
Stock-based compensation	—		—	1,067,400		—		480		—		480
Release of vested restricted common stock	—		—	5,668		—		—		—		—
Restricted stock awards cancelled	—		—	(8,663)		—		—		—		—
Net loss	—		—	—		—		—		(3,904)		(3,904)
Balance as of March 31, 2022	—		—	16,883,464	$	2	$	229,058	$	(216,074)	$	12,986
Stock-based compensation	—		—	30,000		—		506		—		506
Release of vested restricted common stock	—		—	1,167		—		—		—		—
Restricted stock awards cancelled	—		—	(14,809)		—		—		—		—
Net loss	—		—	—		—		—		(4,108)		(4,108)
Balance as of June 30, 2022	—		—	16,899,822		2		229,564		(220,182)		9,384
Stock-based compensation	—		—	177,500		—		526		—		526
Release of vested restricted common stock	—		—	59,931		—		—		—		—
Restricted stock awards cancelled	—		—	(17,900)		—		—		—		—
Issuance of warrants in connection with convertible promissory note	—		—	—		—		91		—		91
Net loss	—		—	—		—		—		(4,649)		(4,649)
Balance as of September 30, 2022	—		—	17,119,353	$	2	$	230,181	$	(224,831)	$	5,352




	Convertible Preferred Stock			Common Shares			Additional		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance as of December 31, 2020	250,000	$	597	8,402,250	$	1	$	207,698	$	(200,383)	$	7,316
Issuance of common stock upon warrant exercise	—		—	2,086,251		—		5,095		—		5,095
Warrants issued in connection with warrant exercise	—		—	—		—		567		—		567
Convertible preferred stock dividend	—		20	—		—		(20)		—		(20)
Stock-based compensation	—		—	643,700		—		254		—		254
Release of vested restricted common stock	—		—	352		—		—		—		—
Net loss	—		—	—		—		—		(3,292)		(3,292)
Balance as of March 31, 2021	250,000		617	11,132,553		1		213,594		(203,675)		9,920
Issuance of common stock upon warrant exercise	—		—	1,360,244		—		3,159		—		3,159
Warrants issued in connection with warrant exercise	—		—	—		—		579		—		579
Convertible preferred stock dividend	—		14	—		—		(14)		—		(14)
Exchange of convertible preferred stock for common stock	(250,000)		(631)	250,000		—		1,640		—		1,640
Warrants issued upon exchange of preferred stock for common stock	—		—	—		—		570		—		570
Deemed dividend on exchange of convertible preferred stock	—		—	—		—		(1,192)		—		(1,192)
Stock-based compensation	—		—	10,000		—		335		—		335
Issuance of common stock to vendor	—		—	10,000		—		34		—		34
Net loss	—		—	—		—		—		(3,398)		(3,398)
Balance as of June 30, 2021	—		—	12,762,797		1		218,705		(207,073)		11,633
Stock-based compensation	—		—	320,800		—		349		—		349
Release of vested restricted common stock	—		—	201,343		—		-		—		—
Issuance of common stock upon warrant exercise	—		—	19,000		—		49		—		49
Registered direct offering, net of issuance costs	—		—	2,500,000		1		9,025		—		9,026
Net loss	—		—	—		—		—		(2,061)		(2,061)
Balance as of September 30, 2021	—	$	—	15,803,940	$	2	$	228,128	$	(209,134)	$	18,996

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2022 and 2021

(in thousands, except share and per share data)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(12,661)	$	(8,751)
Adjustments to reconcile net loss to net cash used in operating activities:
Warrant inducement expense		—		1,146
Forgiveness of Paycheck Protection Program loan		—		(859)
Stock-based compensation		1,512		938
Depreciation and amortization		91		59
Expense for issuance of common stock for services		—		34
Amortization of debt discounts		156		—
Change in fair value of warrant liability		(274)		—
Changes in operating assets and liabilities:
Accounts receivable		(23)		(120)
Inventories		(2,504)		(1,246)
Prepaid expenses and other assets		53		(572)
Other assets		79		—
Accounts payable		1,074		153
Accrued liabilities		(288)		644
Other liabilities		(111)		—
Net cash used in operating activities		(12,896)		(8,574)

Cash flows from investing activities:
Purchases of property and equipment		(36)		(86)
Net cash used in investing activities		(36)		(86)

Cash flows from financing activities:
Proceeds from issuance of common stock upon warrant exercises, net of issuance costs		—		8,303
Proceeds from issuance of convertible notes payable, net of issuance costs		2,483		—
Repayment of capital lease		(15)		(17)
Proceeds from issuance of common stock, in registered direct offering, net of issuance costs		—		9,026
Net cash provided by financing activities		2,468		17,312

Net (decrease) increase in cash and cash equivalents		(10,464)		8,652
Cash and cash equivalents as of beginning of period		13,108		7,415
Cash and cash equivalents as of end of period	$	2,644	$	16,067

Supplemental disclosure of cash flow information:
Cash paid for interest	$	17	$	3
Cash paid for income taxes	$	2	$	2

Noncash Investing and Financing Activities:
Issuance of warrants in connection with convertible notes payable	$	1,076	$	—
Derivative liability recorded in connection with issuance of convertible notes payable	$	286
Exchange of convertible preferred stock for common stock	$	—	$	1,640
Deemed dividend on exchange of convertible preferred stock for common stock	$	—	$	(1,192)
Issuance of warrants in connection with exchange of preferred stock	$	—	$	570
Convertible preferred stock dividend	$	—	$	34

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies

WiSA Technologies, Inc formerly known as Summit Wireless Technologies, Inc. (together with its subsidiaries also referred to herein as “we”, “us”, “our”, or the “Company”) was originally formed as a limited liability company in Delaware on July 23, 2010. Our business is to deliver the best-in-class immersive wireless sound technology for intelligent devices and next generation home entertainment systems through the sale of module components to audio companies as well as audio products to resellers and consumers.

NASDAQ Notifications

On June 23, 2022, the Company received a written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, as set forth under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), because the closing bid price of the Company’s common stock was below $1.00 per share for the previous thirty (30) consecutive business days. The Notice has no immediate effect on the listing of the common stock, which will continue to trade uninterrupted on the Nasdaq Capital Market under the ticker “WISA.”

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted 180 calendar days from the date of the Notice, or until December 20, 2022 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. If at any time during the Compliance Period, the bid price of the common stock closes at or above $1.00 per share for a minimum of ten (10) consecutive business days, Nasdaq will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed.

Strategic Advisor

During the third quarter of 2022, the Company retained a strategic advisor to explore strategic opportunities specifically involving the Company’s IP. Potential strategic opportunities 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 the Company’s assets, merger, business combination, partnership, joint venture, licensing and/or another strategic alternative. Despite the Company’s 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (“Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of operations and cash flows. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Reclassification

Certain reclassifications have been made to prior periods’ condensed consolidated financial statements to conform to the current period presentation. These reclassifications did not result in any change in previously reported net loss, total assets or stockholders’ equity.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited in demand and money market accounts at one financial institution. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company’s accounts receivable are derived from revenue earned from customers located throughout the world. The Company performs credit evaluations of its customers’ financial condition as necessary, and sometimes requires partial payment in advance of shipping. As of September 30, 2022 and December 31, 2021, there was no allowance for doubtful accounts. As of September 30, 2022, the Company had two customers accounting for 61%, and 12% of accounts receivable. As of December 31, 2021, the Company had two customers accounting for 35%, and 27% of accounts receivable.

The Company had three customers accounting for 42%, 16% and 12% of its net revenue for the three months ended September 30, 2022. The Company had three customers accounting for 20%, 18%, and 16% of its net revenue for the nine months ended September 30, 2022. The Company had three customers accounting for 63%, 12% and 12% of its net revenue for the three months ended September 30, 2021. The Company had three customers accounting for 33%, 17%, and 10% of its net revenue for the nine months ended September 30, 2021.

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued acceptance of the Company’s products, competition from substitute products and larger companies, protection of proprietary technology, strategic relationships, dependence on key individuals, and the uncertainties related to supply chain disruptions for customers and suppliers as well as the impact that inflation may have on consumer purchasing and the economy as a whole.

The Company relies on sole-source suppliers to manufacture some of the components used in its product. The Company’s manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, any of which could delay or impede their ability to meet demand. The Company is heavily dependent on a single contractor in China for assembly and testing of its products, a single contractor in Japan for the production of its transmit semiconductor chip and a single contractor in China for the production of its receive semiconductor chip.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and filing fees relating to public offerings, are capitalized. The deferred offering costs will be offset against public offering proceeds upon the effectiveness of an offering. In the event that an offering is terminated, deferred offering costs will be expensed. As of September 30, 2022 and December 31, 2021, the Company had capitalized $206,000 and $83,000 respectively, of deferred offering costs in prepaid expenses and other current assets on the condensed consolidated balance sheet.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Convertible Financial Instruments

The Company bifurcates conversion options and warrants from their host instruments and accounts for them as freestanding derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP.

When the Company has determined that the embedded conversion options and warrants should be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.

Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption.

Warrants for Shares of Common Stock and Derivative Financial Instruments

Warrants for shares of common stock and other derivative financial instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). Contracts which (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain reset provisions that do not qualify for the scope exception are classified as liabilities. The Company assesses classification of its warrants for shares of common stock and other derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

In an equity-classified freestanding financial instrument, as of the date that a down round feature is triggered, the Company measures the fair value of the instrument without the down round feature (that is, before the strike price is reduced) and the fair value of the financial instrument with a strike price that reflects the adjustment from the down round. The incremental difference in the fair value is recorded a deemed dividend. As the Company has an accumulated deficit, the deemed dividend is recorded as a reduction of additional paid-in capital in the condensed consolidated balance sheet. The Company increases the net loss available to common stockholders by the amount of the deemed dividend.

Product Warranty

The Company’s products are generally subject to a one-year warranty, which provides for the repair, rework, or replacement of products (at the Company’s option) that fail to perform within the stated specification. The Company has assessed its historical claims and, to date, product warranty claims have not been significant. The Company will continue to assess if there should be a warranty accrual going forward.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Revenue Recognition

The Company generates revenue primarily from two product categories which include the sale of Consumer Audio Products as well as the sale of Components. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer purchase orders to be the contracts with a customer. Revenues, net of expected discounts, are recognized when the performance obligations of the contract with the customer are satisfied and when control of the promised goods are transferred to the customer, typically when products, which have been determined to be the only distinct performance obligations, are shipped to the customer. Expected costs of assurance warranties and claims are recognized as expense.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer and deposited with the relevant government authority, are excluded from revenue. Our revenue arrangements do not contain significant financing components.

Sales to certain distributors are made under arrangements which provide the distributors with price adjustments, price protection, stock rotation and other allowances under certain circumstances. The Company does not provide its customers with a contractual right of return. However, the Company accepts limited returns on a case-by-case basis. These returns, adjustments and other allowances are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized. We believe that there will not be significant changes to our estimates of variable consideration.

If a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as contract liabilities which are included in other current liabilities when the payment is made or it is due, whichever is earlier.

During the three and nine months ended September 30, 2022 and 2021, net revenue consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Components	$	696	$	1,632	$	1,769	$	3,949
Consumer Audio Products		241		175		680		592
Total	$	937	$	1,807	$	2,449	$	4,541

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts to partially offset prepayments required by our vendors on long lead time materials. Amounts collected prior to the fulfillment of the performance obligation are considered contract liabilities and classified as customer advances within accrued liabilities on the condensed consolidated balance sheets. Contract assets are recorded when we have a conditional right to consideration for our completed performance under the contracts. Accounts receivables are recorded when the right to this consideration becomes unconditional. We do not have any material contract assets as of September 30, 2022 and December 31, 2021.


	September 30,		December 31,
(in thousands)	2022		2021
Contract liabilities	$	32	$	—

Revenue by Geographic Area

In general, revenue disaggregated by geography (See Note 10) is aligned according to the nature and economic characteristics of our business and provides meaningful disaggregation of our results of operations. Since we operate in one segment, all financial segment and product line information can be found in the condensed consolidated financial statements.

Practical Expedients and Exemptions

As part of our adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we elected to use the following practical expedients: (i) not to adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; (iii) not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

In addition, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Stock-Based Compensation

The Company measures and recognizes the compensation expense for restricted stock units and restricted stock awards granted to employees and directors based on the fair value of the award on the grant date.

Restricted stock units give an employee an interest in Company stock but they have no tangible value until vesting is complete. Restricted stock units and restricted stock awards are equity classified and measured at the fair market value of the underlying stock at the grant date and recognized as expense over the related service or performance period. The Company elected to account for forfeitures as they occur. The fair value of stock awards is based on the quoted price of our common stock on the grant date. Compensation cost for restricted stock units and restricted stock awards is recognized using the straight-line method over the requisite service period.

Advertising Costs

Advertising costs are charged to sales and marketing expenses as incurred. Advertising costs for the three and nine months ended September 30, 2022 were $300,000 and $704,000, respectively. Advertising costs for the three and nine months ended September 30, 2021 were $152,000 and $451,000, respectively.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Comprehensive Loss

Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes in equity that are excluded from net loss. For the three and nine months ended September 30, 2022 and 2021, the Company’s comprehensive loss is the same as its net loss.

Foreign Currency

The financial position and results of operations of the Company’s foreign operations are measured using currencies other than the U.S. dollar as their functional currencies. Accordingly, for these operations all assets and liabilities are translated into U.S. dollars at the current exchange rates as of the respective balance sheet date. Expense items are translated using the weighted average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these operations’ financial statements are reported as a separate component of stockholders’ equity, while foreign currency transaction gains or losses, resulting from re-measuring local currency to the U.S. dollar are recorded in the condensed consolidated statement of operations in other income (expense), net and were not material for the three and nine months ended September 30, 2022 and 2021.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive common share equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per common share calculation, Series A Preferred Stock, warrants exercisable for common stock, restricted stock units and shares issuable upon the conversion of convertible notes payable are considered to be potentially dilutive securities.

As of September 30, 2022, warrants to purchase 6,702,802 shares of common stock, 1,677,484 shares of restricted stock, 290,625 shares of restricted stock issued under an inducement grant and 731,627 shares underlying restricted stock units have been excluded from the calculation of net loss per common share because the inclusion would be antidilutive.

As of September 30, 2021, warrants to purchase 4,475,424 shares of common stock, 711,805 shares of restricted stock, 310,000 shares of restricted stock issued under an inducement grant and 456,931 shares underlying restricted stock units have been excluded from the calculation of net loss per common share because the inclusion would be antidilutive.

Recently Adopted Accounting Pronouncements

Adoption of Accounting Standards Codification (“ASC”) 842

The Company adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as of January 1, 2022, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and the Company elected the hindsight practical expedient to determine the lease term for existing leases.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

1.	Business and Summary of Significant Accounting Policies, continued

Adoption of the new standard resulted in the recording of operating lease right-of-use assets of $212,000 and lease liabilities of $327,000, as of January 1, 2022. In addition, the new standard resulted in the recording of an additional $90,000 of property and equipment and the reversal of $58,000 of deferred rent and lease incentive as required under the new standard. The standard did not have an impact on our consolidated results of operations or cash flows. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The effect of the changes made to our consolidated January 1, 2022 balance sheet for the adoption of the new lease standard was as follows (in thousands):


	Balance as of		Adjustments		Balance as of
	December 31, 2021		Due to ASC 842		January 1, 2022
Operating lease right-of-use assets	$	—	$	212	$	212
Property and equipment, net		162		90		252
Total assets	$	19,391	$	302	$	19,693
Operating lease liabilities, current	$	—	$	148	$	148
Operating lease liabilities, non-current	$	—	$	179	$	179
Deferred rent and lease incentive	$	58	$	(58)	$	—
Total liabilities	$	3,014	$	269	$	3,283
Accumulated deficit	$	(212,203)	$	33	$	(212,170)
Total stockholders’ equity	$	16,377	$	33	$	16,410
Total liabilities and stockholders’ equity	$	19,391	$	302	$	19,693

Recently Issued and Not Yet Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06 “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. As an emerging growth company, the Company is allowed to adopt the accounting pronouncement at the same time as non-public business entities. As a result, the Company will adopt the update for its fiscal year beginning after December 15, 2023. The Company is evaluating the impact of this standard on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which requires the early recognition of credit losses on financing receivables and other financial assets in scope. ASU 2016-13 requires the use of a transition model that will result in the earlier recognition of allowances for losses. The new standard is effective for fiscal years beginning after December 15, 2022. Management is currently evaluating the new standard and its possible impact on the Company’s condensed consolidated financial statements.

We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the condensed consolidated financial statements as a result of future adoption.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

2.	Going Concern

The condensed consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. The Company has incurred net operating losses each year since inception. As of September 30, 2022, the Company had cash and cash equivalents of $2.6 million and reported net cash used in operations of $12.9 million during the nine months ended September 30, 2022. In August of 2022, the Company raised net proceeds of $2.5 million from the issuance of a $3.6 million convertible notes payable. In September 2022, the Company entered into an “at-the-market” sales agreement with Maxim and no proceeds have yet been generated by the sales agreement. 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 costs associated with efforts to increase its market share. The Company’s ability to transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure.

Based on current operating levels, the Company will need to raise additional funds by selling additional equity or incurring additional debt. To date, the Company has funded its operations primarily through sales of its common stock in public markets, sales of common and preferred units prior to its initial public offering (“IPO”) proceeds from the exercise of warrants to purchase common stock and the sale of convertible notes and issuance of convertible notes payable. 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 report.

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 condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 and 2021

(unaudited)

3.	Balance Sheet Components

Inventories (in thousands):


	September 30,		December 31,
	2022		2021

Raw materials	$	3,116	$	2,676
Work in progress		452		784
Finished goods		3,716		1,320
Total inventories	$	7,284	$	4,780

Property and equipment, net (in thousands):


	September 30,		December 31,
	2022		2021
Machinery and equipment	$	992	$	965
Tooling		11		11
Computer software		—		89
Furniture and fixtures		15		15
Leasehold improvements		127		40
		1,145		1,120
Less: Accumulated depreciation and amortization		(947)		(958)
Property and equipment, net