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Table of Contents

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 March 31, 2023

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 May 12, 2023 is 3,801,953.

Table of Contents

WISA TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2023

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 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

28

Item 3. Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. Controls and Procedures

31

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3. Defaults Upon Senior Securities

33

Item 4. Mine Safety Disclosures

33

Item 5. Other Information

33

Item 6. Exhibits

34

SIGNATURES

35

2

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)

    

March 31, 2023

    

December 31, 2022

  

(unaudited)

  

(1)

Assets

 

  

 

  

Current Assets:

 

  

 

  

Cash and cash equivalents

$

5,259

$

2,897

Accounts receivable

 

226

 

273

Inventories

 

5,747

 

7,070

Prepaid expenses and other current assets

 

1,064

 

890

Total current assets

 

12,296

 

11,130

Property and equipment, net

 

155

 

174

Other assets

 

126

 

148

Total assets

$

12,577

$

11,452

Liabilities and Stockholders’ Equity/(Deficit)

 

 

  

Current Liabilities:

 

 

  

Accounts payable

$

2,179

$

2,042

Accrued liabilities

 

1,063

 

1,632

Total current liabilities

 

3,242

 

3,674

Convertible note payable

468

457

Warrant liabilities

771

8,945

Derivative liability

333

333

Other liabilities

39

Total liabilities

 

4,814

 

13,448

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ Equity/(Deficit):

 

  

 

  

Common stock, par value $0.0001; 200,000,000 shares authorized; 3,058,887 and 168,835 shares issued and outstanding as of March 31, 2023 and 2022, respectively

 

7

 

7

Additional paid-in capital

 

236,998

 

226,318

Accumulated deficit

 

(229,242)

 

(228,321)

Total stockholders’ equity/(deficit)

 

7,763

 

(1,996)

Total liabilities and stockholders’ equity (deficit)

$

12,577

$

11,452

(1)The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated balance sheet as of that date.

Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 1-for-100 reverse stock split effected in January 2023, as discussed in Note 1.

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

3

Table of Contents

WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31, 2023 and 2022

(in thousands, except share and per share data)

(unaudited)

Three Months Ended March 31, 

    

2023

    

2022

Revenue, net

$

469

 

$

566

Cost of revenue

 

1,722

 

 

504

Gross profit (deficit)

 

(1,253)

 

 

62

Operating Expenses:

 

 

 

Research and development

 

1,893

 

 

1,537

Sales and marketing

 

1,294

 

 

1,300

General and administrative

 

1,362

 

 

1,126

Total operating expenses

 

4,549

 

 

3,963

Loss from operations

 

(5,802)

 

 

(3,901)

Interest expense, net

 

(723)

 

 

(1)

Change in fair value of warrant liabilities

 

5,604

 

 

Other expense, net

 

 

 

(2)

Loss before provision for income taxes

 

(921)

 

 

(3,904)

Provision for income taxes

 

 

 

Net loss

$

(921)

$

(3,904)

Net loss - basic and diluted

$

(0.53)

 

$

(26.33)

Weighted average number of common shares used in computing net loss

 

1,730,365

 

 

148,289

Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 1-for-100 reverse stock split effected in January 2023, as discussed in Note 1.

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

4

Table of Contents

WISA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the three months ended March 31, 2023 and 2022

(in thousands, except share and per share data)

(unaudited)

Common Shares

Additional

Accumulated

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity (Deficit)

Balance as of December 31, 2022

 

712,564

$

7

$

226,318

$

(228,321)

$

(1,996)

Stock-based compensation

 

 

 

499

 

 

499

Restricted stock awards cancelled

(43)

Issuance of common stock in connection with convertible promissory note

67,500

708

708

Issuance of common stock in connection with warrant exercise

858,353

8,202

8,202

Issuance of common stock and warrants, net of offering costs

1,420,513

1,271

1,271

Net loss

(921)

(921)

Balance as of March 31, 2023

 

3,058,887

$

7

$

236,998

$

(229,242)

$

7,763

Common Shares

Additional

Accumulated

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity (Deficit)

Balance as of December 31, 2021

158,191

$

2

$

228,578

$

(212,203)

$

16,377

ASC842 adoption adjustment

33

33

Stock-based compensation

10,674

480

480

Release of vested restricted common stock

57

Restricted stock awards cancelled

(87)

Net loss

(3,904)

(3,904)

Balance as of March 31, 2022

168,835

$

2

$

229,058

$

(216,074)

$

12,986

Note: Share amounts have been retroactively adjusted to reflect the impact of a 1-for-100 reverse stock split effected in January 2023, as discussed in Note 1.

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 three months ended March 31, 2023 and 2022

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(921)

$

(3,904)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

Stock-based compensation

499

480

Depreciation and amortization

33

29

Amortization of debt discounts

719

Change in fair value of warrant liability

(5,604)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

47

 

(29)

Inventories

 

1,323

 

(1,447)

Prepaid expenses and other assets

 

(271)

 

105

Other assets

22

Accounts payable

 

137

 

551

Accrued liabilities

 

(563)

 

196

Other liabilities

 

(39)

 

(15)

Net cash used in operating activities

 

(4,618)

 

(4,034)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(14)

 

(7)

Net cash used in investing activities

 

(14)

 

(7)

Cash flows from financing activities:

 

  

 

  

Repayment of finance lease

(6)

(6)

Proceeds from issuance of common stock and prefunded warrants, net of issuance costs

6,968

Proceeds from exercise of warrants

 

32

 

Net cash provided by financing activities

 

6,994

 

(6)

Net increase (decrease) in cash and cash equivalents

 

2,362

 

(4,047)

Cash and cash equivalents as of beginning of period

 

2,897

 

13,108

Cash and cash equivalents as of end of period

$

5,259

$

9,061

Supplemental disclosure of cash flow information:

Cash paid for interest

$

2

$

1

Cash paid for income taxes

$

$

Noncash Investing and Financing Activities:

 

  

 

  

Issuance of warrant liability in connection with February 2023 offering

$

5,600

$

Cashless exercise of warrants

$

8,170

$

Issuance of common stock in connection with convertible promissory note

$

708

Deferred offering costs reclassed from prepaid expenses

$

(97)

$

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

6

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(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.

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was granted 180 calendar days from the date of the Notice, or until December 20, 2022, to regain compliance with the Minimum Bid Price Requirement.

The Company’s Common Stock failed to regain compliance with the Minimum Bid Price Requirement as of December 20, 2022. On December 19, 2022, the Company requested an extension of an additional 180 days in which to regain compliance with the Minimum Bid Price Requirement.

On December 21, 2022, the Company received notice from Nasdaq indicating that, while the Company has not regained compliance with the Minimum Bid Price Requirement, Staff has determined that the Company is eligible for an additional 180-day period, or until June 20, 2023, to regain compliance.

On January 18, 2023, the Company received notice (the “January 18 Letter”) that Nasdaq had determined that as of January 18, 2023, the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”). As a result, the Staff determined to delist the Company’s securities from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

On February 13, 2023, the Company received notice (the “February 13 Letter”) from Nasdaq that it had determined that the Company had cured its bid price deficiency and now complies with the Minimum Bid Price Requirement, as the closing bid price of the Company’s common stock was at least $1.00 per share for at least a minimum of 10 consecutive business days.

On December 21, 2022, the Company received a letter from Nasdaq notifying the Company that it had determined that the Company did not comply with Listing Rule 5635(d) because the Company’s December 2022 public offering did not meet Nasdaq’s definition of a public offering under Listing Rule IM-5635-3. Nasdaq’s determination was based on the significant discount to the “Minimum Price,” as defined in Nasdaq rules.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

1.

Business and Summary of Significant Accounting Policies, continued

The Company had requested a hearing before the Panel to appeal the January 18 Letter and to address all outstanding matters, including compliance with the Minimum Bid Price Requirement, the Low Priced Stocks Rule and Nasdaq Listing Rule 5635(d), which hearing was held on March 9, 2023. As a result of the February 13 Letter, the Company was required only to address its compliance with the Nasdaq Listing Rule 5635(d) in the hearing. The Panel determined that it could not definitively conclude that the December public offering did not comply with Listing Rule 5635(d) and therefore did not issue a public reprimand letter. This matter is now closed.

On March 20, 2023, the Staff orally notified us that we were not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing (the “Stockholders’ Equity Requirement”). We reported stockholders’ equity (deficit) of ($1,996,000) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and, as a result, did not satisfy the Stockholders’ Equity Requirement of $2,500,000 pursuant to Listing Rule 5550(b)(1). As of March, we had stockholders’ equity of $7,763,000 and, accordingly, we believe that we have regained compliance with the Stockholders’ Equity Requirement.

Reverse Stock Split

On January 24, 2023, the Company held a special meeting of its stockholders, at which its stockholders approved an amendment to the Company’s certificate of incorporation, as amended, to effect a reverse stock split of all of the outstanding shares of common stock at a specific ratio within a range from one-for-five to one-for-one hundred, and to grant authorization to the board of directors to determine, in its sole discretion, the specific ratio and timing of the reverse stock split. On January 24, 2023, the Board approved a 1-for-100 reverse stock split (the “Reverse Stock Split”) of our outstanding shares of common stock and authorized the filing of a certificate of amendment to our certificate of incorporation, as amended, with the Secretary of State of the State of Delaware (the “Certificate of Amendment”) to effect the Reverse Stock Split. On January 26, 2023, the Reverse Stock Split was effected and the condensed consolidated financial statements have been retroactively adjusted. All common stock share numbers, warrants to purchase common stock, prices and exercise prices have been retroactively adjusted to reflect the Reverse Stock Split. The common stock began trading on a split-adjusted basis at the start of trading on January 27, 2023. Unless otherwise indicated, the information presented in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the “Report”) gives effect to the Reverse Stock Split.

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 Three Months Ended March 31, 2023 and 2022

(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 March 31, 2023 and December 31, 2022, there was no allowance for doubtful accounts. As of March 31, 2023, the Company had one customer accounting for 86% of accounts receivable. As of December 31, 2022, the Company had two customers accounting for 62% and 12% of accounts receivable. The Company had two customers accounting for 45% and 10% of its net revenue for the three months ended March 31, 2023. The Company had three customers accounting for 36%, 25% and 16% of its net revenue for the three months ended March 31, 2022.

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 and dependence on key individuals.

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 March 31, 2023 and December 31, 2022, the Company had capitalized $0 and $206,000, respectively, of deferred offering costs in prepaid expenses and other current assets on the condensed consolidated balance sheet.

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.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

1.

Business and Summary of Significant Accounting Policies, continued

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.

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.

10

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

1.

Business and Summary of Significant Accounting Policies, continued

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 months ended March 31, 2023 and 2022, net revenue consisted of the following:

    

 For the Three Months Ended March 31, 

(in thousands)

2023

    

2022

Components

$

327

$

301

Consumer Audio Products

 

142

 

265

Total

$

469

$

566

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 March 31, 2023 and December 31, 2022.

March 31, 

December 31, 

(in thousands)

    

2023

    

2022

Contract Liabilities

$

47

$

44

During the three months ended March 31, 2023, the Company recognized $11,000 of revenue that was included in the contract balances as of December 31, 2022.

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.

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

1.

Business and Summary of Significant Accounting Policies, continued

Practical Expedients and Exemptions

In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we 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 months ended March 31, 2023 and 2022 were $155,000 and $171,000, respectively.

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 months ended March 31, 2023 and 2022, 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 months ended March 31, 2023 and 2022.

12

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

1.

Business and Summary of Significant Accounting Policies, continued

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, 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.

For the three months ended March 31, 2023, warrants to purchase 2,680,998 shares of common stock, 14,064 shares of restricted stock, 2,778 shares of restricted stock issued under an inducement grant and 5,847 shares underlying restricted stock units have been excluded from the calculation of net loss per common share because the inclusion would be antidilutive.

For the three months ended March 31, 2022, warrants to purchase 44,744 shares of common stock, 15,688 shares of restricted stock, 2,971 shares of restricted stock issued under an inducement grant and 4,274 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

In June 2016, Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update (“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. The Company adopted this standard on January 1, 2023, and the adoption did not have any impact on the condensed consolidated financial statements.

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.

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.

13

Table of Contents

WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(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 March 31, 2023, the Company had cash and cash equivalents of $5.3 million and reported net cash used in operations of $4.6 million during the three months ended March 31, 2023. The Company expects operating losses to continue in the foreseeable future because of additional costs and expenses related to research and development activities, and plans to expand its product portfolio and 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 debt. To date, the Company has funded its operations primarily through issuance of equity securities, and proceeds from the exercise of warrants to purchase common stock and the sale of debt instruments. Additionally, future capital requirements will depend on many factors, including the rate of revenue growth, the selling price of the Company’s products, the expansion of sales and marketing activities, the timing and extent of spending on research and development efforts and the continuing market acceptance of the Company’s products. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of this 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.

3.

Balance Sheet Components

Inventories (in thousands):

March 31, 

December 31, 

    

2023

    

2022

Raw materials

$

1,988

$

3,043

Work in progress

13

Finished goods

 

3,759

 

4,014

Total inventories

$

5,747

$

7,070

Property and equipment, net (in thousands):

March 31, 

December 31, 

    

2023

    

2022

Machinery and equipment

$

705

$

691

Leasehold improvements

127

127

Tooling

 

11

 

11

 

843

 

829

Less: Accumulated depreciation and amortization

 

(688)

 

(655)

Property and equipment, net

$

155

$

174

14

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

3.

Balance Sheet Components, continued

Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $33,000 and $29,000, respectively.

The cost and accumulated depreciation of assets acquired under finance lease included in machinery and equipment in the above table as of March 31, 2023 were $72,000 and $62,000, respectively.

Accrued liabilities (in thousands):

March 31, 

December 31, 

    

2023

    

2022

Accrued vacation

$

430

$

422

Accrued rebate

233

215

Accrued audit fees

108

179

Accrued lease liability, current portion

 

162

 

169

Customer advance

47

44

Accrued other

83

424

Accrued compensation

136

Accrued legal fees

 

 

43

Total accrued liabilities

$

1,063

$

1,632

4.

Borrowings

Convertible Promissory Note

On August 15, 2022, the Company entered into a Securities Purchase Agreement (the “August Purchase Agreement”), by and between the Company and an institutional investor (the “Convertible Note Investor”), pursuant to which the Company agreed to issue to the Investor a senior secured convertible note in the principal amount of $3,600,000 (the “Convertible Note”) and a warrant (the “August Warrant”) to purchase up to 20,970 shares of the Company’s common stock, at an exercise price of $99.70 per share (the “Exercise Price”), in consideration for $3,000,000. Pursuant to the August Purchase Agreement, upon the closing of the private placement, pursuant to which Maxim Group LLC (“Maxim”) acted as placement agent (the “Private Placement”), the Company received gross proceeds of $3,000,000. After the deduction of banker fees, commitment fees and other expenses associated with the transaction, the Company received net proceeds of $2,483,000. The Company used the net proceeds primarily for working capital and general corporate purposes.

15

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

4.

Borrowings, continued

The Convertible Note matures on August 15, 2024, does not bear interest and ranks senior to the Company’s existing and future indebtedness and is secured to the extent and as provided in the Security Agreements. The Convertible Note is convertible in whole or in part at the option of the Convertible Note Investor into shares of Common stock (the “Conversion Shares”) at the Conversion Price (as defined below) at any time following the date of issuance of the Convertible Note. The Convertible Note defines “Conversion Price” as equal to the lesser of (a) 90% of the average of the five lowest daily VWAPs (as defined in the Convertible Note) during the previous twenty trading days prior to delivery to the Company of the Convertible Note Investor’s applicable notice of conversion (the “Conversion Notice”) and (b) $92.60 (the “Base Conversion Price”). The Base Conversion Price is subject to full ratchet antidilution protection, subject to a floor conversion price of $0.50 per share (the “Floor Price”), a limitation required by the rules and regulations of Nasdaq, and certain exceptions upon any subsequent transaction at a price lower than the Base Conversion Price then in effect and standard adjustments in the event of stock dividends, stock splits, combinations or similar events; provided that in the event the Conversion Price equals the Floor Price, the Company is required to pay the Convertible Note Investor a cash amount determined pursuant to a formula in the Convertible Note, and provided further that the Floor Price will not apply in the event that the Company obtains Stockholder Approval (as defined in the August Purchase Agreement) in accordance with Nasdaq rules. At any time after the closing date of the Private Placement, in the event that the Company issues or sells any shares of common stock or common stock Equivalents (as defined in the Convertible Note), subject to certain exceptions, at an effective price per share lower than the Base Conversion Price then in effect or without consideration, then the Base Conversion Price shall be reduced to the price per share paid for such shares of common stock or common stock Equivalents. Additionally, upon three days’ written notice to the holder after receipt of a Conversion Notice, in lieu of delivering Conversion Shares, the Company has the right to pay the Convertible Note Investor in cash an amount equal to 105% of the portion of the outstanding principal amount stated in such Conversion Notice. Further, at the Convertible Note Investor’s option, the Convertible Note is convertible into shares of common stock or redeemable for 103% of the portion of the outstanding principal amount to be converted in the event that any transaction causes the Conversion Price to be lower than the Floor Price. Subject to certain exceptions, commencing on the Conversion Trigger Date and for a nine-month period after such date, the Convertible Note Investor may convert only up to an aggregate of $250,000 in outstanding principal amount during any calendar month, provided, that if Stockholder Approval has been obtained, the Convertible Note is in default at the time or the Company meets certain capitalization conditions, such conversion limitation would not apply.

The obligations and performance of the Company under the Convertible Note and the August Purchase Agreement are secured by a senior lien granted pursuant to security agreements between the Convertible Note Investor and the Company, on (a) all of the assets of the Company; (b) a senior lien granted pursuant to trademark security agreements between the Convertible Note Investor and the Company; (c) a senior lien granted pursuant to a patent security agreement between the Convertible Note Investor and the Company on all of the patent assets of the Company; and (d) a pledge of certain securities pursuant to a pledge agreement between the Convertible Note Investor, the Company (such agreements listed in (a)-(d) above, collectively, the “Security Agreements”). The payment and performance obligations of the Company under the Convertible Note and the August Purchase Agreement are guaranteed pursuant to a guaranty by the Company in favor of the Convertible Note Investor.

In connection with the Private Placement, the Company issued warrants to the Convertible Note Investor and Maxim to purchase common shares of 20,970 and 1,944, respectively (see Note 6 – Fair Value Measurements). The sum of the fair value of the warrants, the original issue discount for interest, issuance costs and the derivative liability for the embedded conversion feature for the Convertible Note were recorded as debt discounts totaling $2,509,000 to be amortized to interest expense over the respective term using the effective interest method. During the three months ended March 31, 2023, the Company recognized $719,000 of interest expense from the amortization of debt discounts. As of March 31, 2023 the net unamortized debt discounts totaled $913,000, and the net carrying value of the convertible note payable was $468,000.

In connection with the Private Placement, the Company entered into a placement agency agreement with Maxim (the “Placement Agency Agreement”), and agreed to issue to Maxim, a warrant to purchase up to an aggregate of 1,944 shares of Common Stock (the “Maxim Warrant”) at an exercise price of $99.70 per share, which is exercisable at any time on or after the six-month anniversary of the closing date of the Private Placement and will expire on the fifth (5th) anniversary of its date of issuance.

16

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

4.

Borrowings, continued

Effective August 24, 2022, the Company and the Convertible Note Investor agreed to amend Section 3.1(b) of the Convertible Note to provide that the Conversion Price could not be lower than the Floor Price until stockholder approval has been obtained, after which stockholder approval the Floor Price may be reduced to no lower than $0.25, subject to adjustment pursuant to the terms of the Convertible Note. The changes were effected by cancellation of the Convertible Note and the issuance of a replacement senior secured convertible note (the “New Convertible Note”) to the Convertible Note Investor. The New Convertible Note contains identical terms as the Convertible Note, except for the amendment to the Section 3.1(b).

On November 21, 2022, the Company and Maxim entered into an agreement to amend the Maxim Warrant (the “Maxim Warrant Amendment”). Specifically, the Maxim Warrant Amendment sets forth certain circumstances in which the lock up restrictions to which the Maxim Warrant is subject would not apply. The Maxim Warrant Amendment also clarifies certain limitations with respect to demand registration rights, and provides that Maxim’s piggy-back registration rights expire on the fifth (5th) anniversary of the Maxim Warrant’s date of issuance.

Convertible promissory note (in thousands):

    

March 31,

    

December 31,

2023

2022

Convertible note payable

$

1,381

$

2,089

Debt discount

 

(913)

 

(1,632)

Net total

$

468

$

457

The New Convertible Note contains several embedded conversion features. The Company concluded that those conversion features require bifurcation from the New Convertible Note and subsequent accounting in the same manner as a freestanding derivative. The Company recognized a derivative liability of $286,000 upon execution of the note agreement and such amount was included in the $2,509,000 of debt discounts noted above. Subsequent changes in the fair value of these conversion features are measured at each reporting period and recognized in the consolidated statement of operations. The Company recognized no change in the fair value of the derivative liability during the three months ended March 31, 2023, and the balance of the derivative liability as of March 31, 2023 remained $333,000.

On November 28, 2022, the Company entered into a waiver of rights (the “Waiver”) with the Convertible Note Investor, pursuant to which the Convertible Note Investor agreed to waive certain prohibitions under the August Purchase Agreement with respect to the offering of units in December 2022 in exchange for the issuance by the Company, on the closing date of such offering, of an additional number of Series A warrants to purchase shares of Common Stock (“Series A Warrants”) and an additional number of Series B warrants to purchase shares of Common Stock (“Series B Warrants”) equal to the quotient obtained by dividing $750,000 by the public offering price for the units sold in the offering (such Warrants, the “Waiver Warrants”).

In connection with the public offering the Company consummated on December 1, 2022 (“December 2022 Offering”), the Company issued 53,572 Series A Warrants and 53,572 Series B Warrants to the Convertible Note Investor (See Note 6). The Company’s obligation to issue shares of common stock underlying the Waiver Warrants is expressly conditioned upon stockholder approval of all of the transactions contemplated by the August Purchase Agreement.

On February 1, 2023, the holder of the Convertible Note converted approximately $708,000, a portion of the outstanding principal amount into 67,500 shares of the Company’s common stock. In April 2023, the Company paid off the entirety of the outstanding balance of the Convertible Note - see Note 11 – Subsequent Events for additional information.

17

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

5.

Fair Value Measurements

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

Level 1 – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult.
Level 2 – Pricing is provided by third-party sources of market information obtained through investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors.
Level 3 – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 by level within the fair value hierarchy, are as follows:

(in thousands)

March 31, 2023

Significant

Quoted prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities:

  

  

  

Derivative liability

$

$

$

333

Warrant liabilities

$

$

$

771

(in thousands)

December 31, 2022

Significant

Quoted prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities:

  

  

  

Derivative liability

$

$

$

333

Warrant liabilities

$

$

$

8,945

There were no transfers between Level 1, 2 or 3 during the three months ended March 31, 2023 or 2022.

18

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

5.

Fair Value Measurements, continued

Derivative Liability

As described previously in Note 4, the conversion provisions embedded in the Convertible Note require bifurcation and measurement at fair value as a derivative. The fair value was calculated using a Monte Carlo simulation to create a distribution of potential market capitalizations and share prices for the Company on a weekly basis over the assumed period, given the various scenarios. The average value of the Convertible Note was discounted to the valuation date to determine a calibrated discount rate so that the fair value of the Convertible Note was $3 million. The value of the Convertible Note was compared with the value of a hypothetical note with no conversion rights in order to determine the fair value of the conversion feature. During the three months ended March 31, 2023 and 2022, there were no changes in the fair value of the derivative liability.

For the three months ended March 31,

(in thousands)

    

2023

    

2022

Beginning balance

$

333

$

Additions

 

 

Change in fair value

 

 

Ending balance

$

333

$

Warrant Liabilities

The following table includes a summary of changes in fair value of the Company’s warrant liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2023 and, 2022 were as follows:

March 31,

(in thousands)

2023

2022

Beginning balance

    

$

8,945

    

$

8

Additions

 

5,600

 

Change in fair value

 

(5,604)

 

Exercise of warrant liabilities

 

(8,170)

 

Ending balance

$

771

$

8

The changes in fair value of the warrant liabilities are recorded in change in fair value of warrant liabilities in the condensed consolidated statements of operations.

19

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

6.

Stockholders’ Equity

Common Stock

2018 Long Term Stock Incentive Plan

On January 30, 2018, the Company’s board of directors approved the establishment of the Company’s 2018 Long-Term Stock Incentive Plan (the “LTIP”) and termination of its Carve-Out Plan. Under the LTIP, the aggregate maximum number of shares of common stock (including shares underlying options) that may be issued under the LTIP pursuant to awards of Restricted Shares or Options will be limited to 15% of the outstanding shares of common stock, which calculation shall be made on the first trading day of each new fiscal year; provided that, in any year no more than 8% of the common stock or derivative securitization with common stock underlying 8% of the common stock may be issued in any fiscal year. At a Special Meeting of Stockholders on January 24, 2023, the Stockholders approved certain amendments to the LTIP to: (i) increase the annual share limit of Common Stock that may be issued in any single fiscal year only for the 2023 fiscal year under the LTIP from 8% of the shares of Common Stock outstanding to 15% of the shares of Common Stock outstanding (which amount equates to the maximum amount that may be issued in the aggregate under the LTIP), and (ii) permit immediately quarterly calculations based on the number of shares of Common Stock outstanding as of the first trading day of each fiscal quarter, rather than solely as of the first trading day of the fiscal year. As of March 31, 2023, up to 458,833 shares of common stock are available for participants under the LTIP.

A summary of activity related to restricted stock awards for the three months ended March 31, 2023 is presented below:

    

    

Weighted-Average 

Stock Awards

Shares

Grant Date Fair Value

Non-vested as of January 1, 2023

14,107

$

189.45

Granted

 

$

Vested

 

$

Forfeited

 

(43)

$

249.92

Non-vested as of March 31, 2023

 

14,064

$

188.28

As of March 31, 2023, the unamortized compensation costs related to the unvested restricted stock awards was approximately $1,720,000 which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.8 years.

For the three months ended March 31, 2023, no shares of restricted stock, issued under the LTIP, were released. For the three months ended March 31, 2022, 218,267 shares of restricted stock issued under the LTIP, were released with an intrinsic value of approximately $254,000.

2020 Stock Incentive Plan

A summary of activity related to restricted stock units under the Company’s 2020 Stock Incentive Plan for the three months ended March 31, 2023 is presented below:

Weighted-Average 

Stock Units

    

Shares

    

Grant Date Fair Value

Non-vested as of January 1, 2023

 

2,161

$

238.33

Granted

 

$

Vested

 

$

Forfeited

 

(14)

$

193.17

Non-vested as of March 31, 2023

 

2,147

$

236.98

20

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

6.

Stockholders’ Equity, continued

As of March 31, 2023, the unamortized compensation costs related to the unvested restricted stock units was approximately $200,000 which is to be amortized on a straight-line basis over a weighted-average period of approximately 0.5 years.

For the three months ended March 31, 2023, no shares of restricted stock, issued under the 2020 Stock Incentive Plan, were released. For the three months ended March 31, 2022, 5,668 shares of restricted stock, issued under the 2020 Stock Incentive Plan, were released with an intrinsic value of approximately $7,000.

Inducement Grant

On September 13, 2021, the Company issued 3,100 shares of restricted common stock to Eric Almgren, the Company’s Chief Strategist, as an inducement grant (“September 2021 Inducement Grant”). As of March 31, 2023, the unamortized compensation cost related to the unvested September 2021 Inducement Grant was approximately $377,000 which is being amortized on a straight-line basis over a period of approximately 1.5 years. As of March 31, 2023, 2,778 shares are unvested. During the months ended March 31, 2022, no shares of restricted stock were released under the September 2021 Inducement Grant. For the three months ended March 31, 2022, 65 shares of restricted common stock issued under the September 2021 Inducement Grant, were released with an intrinsic value of approximately $8,000.

2022 Plan

A summary of activity related to restricted stock units under the Company’s Technical Team Retention Plan of 2022 (the “2022 Plan”) for the three months ended March 31, 2023 is presented below:

Weighted-Average

Stock Units

    

Shares

    

Grant Date Fair Value

Non-vested as of January 1, 2023

 

3,700

$

52.00

Granted

 

$

Vested

 

$

Forfeited

 

$

Non-vested as of March 31, 2023

 

3,700

$

52.00

As of March 31, 2023, the unamortized compensation cost related to the unvested restricted stock units was approximately $165,000 which is to be amortized on a straight-line basis over a weighted-average period of approximately 3.2 years.

For the three months ended March 31, 2023 and 2022, no shares of restricted stock, issued under the 2022 Plan, were released.

February 2023 Offering

On January 31, 2023, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company agreed to issue and sell to such investors (i) in a registered direct offering, 201,544 shares of common stock and pre-funded warrants (the “February 2023 Pre-Funded Warrants”) to purchase up to 381,762 shares of common stock, at an exercise price of $0.0001 per share of common stock, and (ii) in a concurrent private placement, common stock purchase warrants, exercisable for an aggregate of up to 874,959 shares of common stock, at an exercise price of $10.49 per share of common stock (the “February 2023 Offering”). In February and March of 2023, all of the February 2023 Pre-Funded Warrants were exercised for cash.

On February 3, 2023, the Company closed the February 2023 Offering, and received net proceeds of approximately $5.3 million after deducting placement agent fees and other offering expenses payable by the Company.

21

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

6.

Stockholders’ Equity, continued

Also in connection with the February 2023 Offering, on January 31, 2023, the Company entered into a placement agency agreement with Maxim, pursuant to which Maxim agreed to act as placement agent on a “best efforts” basis in connection with the offering and (ii) the Company agreed to pay Maxim an aggregate fee equal to 8.0% of the gross proceeds raised in the offering.

Also in connection with the offering, the Company entered into an amendment (the “Amendment”) to the securities purchase agreement, dated as of November 29, 2022, by and between the Company and certain institutional investors (the “November Purchase Agreement”) approved by a certain investor (the “November Investor”) who purchased at least 50.1% in interest of the shares of Common Stock and the pre-funded warrants to purchase shares of Common Stock, if any, based on the initial subscription amounts under the November Purchase Agreement, pursuant to Section 5.5 of the November Purchase Agreement. Pursuant to the Amendment, Section 4.11 of the November Purchase Agreement, which prohibits the Company’s ability to issue shares of Common Stock or Common Stock Equivalents (as defined in the November Purchase Agreement) or filing any registration statement or amendment or supplement thereto under the Securities Act, until ninety (90) days after the closing date of the transactions contemplated by the November Purchase Agreement, was amended to permit the offering discussed above and the issuance and sale of the securities offered and sold in such offering.

March 2023 Offering

On March 27, 2023, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company agreed to issue and sell to such investors (i) in a registered direct offering, 837,207 shares of common stock of the Company and (ii) in a concurrent private placement, common stock purchase warrants, exercisable for an aggregate of up to 1,674,414 shares of common stock, at an exercise price of $1.91 per share (the March 2023 Offering”).

On March 29, 2023, the Company closed the March 2023 Offering and received net proceeds of approximately $1.6 million, after deducting fees payable to the financial advisor and other offering expenses.

Warrants for Shares of Common Stock

A summary of the warrant activity and related information for the three months ended March 31, 2023 and 2022 is provided as follows.

In connection with February 2023 Offering, the Company issued Common Stock Purchase Warrants to investors to purchase up to 874,959 shares of the Company’s common stock, at an exercise price of $10.49 per share. The grant date fair value of such warrants was $5,600,000, which was recorded as a liability with the offset recorded to additional paid-in capital on the condensed consolidated balance sheets. The fair value of such warrants was determined using the Black-Scholes Model based on the following weighted average assumption: common stock price on the date of grant of $8.90; expected yield of 0.0%; expected volatility of 96%; risk-free interest rate of 3.67% and expected life of 5 years.

In connection with March 2023 Offering, the Company issued Common Stock Purchase Warrants to investors to purchase up to 1,674,414 shares of the Company’s common stock, at an exercise price of $1.91 per share. The grant date fair value of such warrant was $2,113,000, which was recorded as equity. The fair value of such warrants was determined using the Black-Scholes Model based on the following weighted average assumption: common stock price on the date of grant of $1.66; expected yield of 0.0%; expected volatility of 104%; risk-free interest rate of 3.67% and expected life of 5 years.

During the three months ended March 31, 2023, 2,715 warrants to purchase common stock were exercised for cash, resulting in proceeds of approximately $32,000. In addition, during the three months ended March 31, 2023, 1,118,152 warrants were exercised using an alternative cashless exercise provision, resulting in the issuance 855,637 shares of common stock. There were no exercises of warrants to purchase common stock in the three months ended March 31, 2022.

22

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

6.

Stockholders’ Equity, continued

Information regarding warrants for common stock outstanding and exercisable as of March 31, 2023 is as follows:

Warrants

Weighted Average

Warrants

Exercise

Outstanding as of

Remaining

Exercisable as of

Price

    

March 31, 2023

    

Life (years)

    

March 31, 2023

$0.10 - $1.91

 

1,674,414

 

5.0

 

1,674,414

$10.49

 

874,959

 

4.8

 

874,959

$14.00

 

87,249

 

4.6

 

87,249

$99.70

 

1,944

 

4.4

 

1,944

$152.00 - $12,500.00

 

42,432

 

2.3

 

42,332

$11.69 *

 

2,680,998

 

4.9

 

2,680,898

*Weighted average

Warrants exercisable as of March 31, 2023 exclude warrants to purchase 100 shares of common stock issued to a marketing firm, which vest upon the achievement of certain milestones. Additionally, warrants to purchase 154 shares of common stock which are shown above with a price of $1,580.00 are pre-funded warrants under which the holder shall pay $20.00 per share to complete the exercise.

Information regarding warrants for common stock outstanding and exercisable as of December 31, 2022 is as follows:

    

Warrants

    

Weighted Average

    

Warrants

Exercise

Outstanding as of

Remaining

Exercisable as of

Price

December 31, 2022

Life (years)

December 31, 2022

$14.00

 

1,187,145

 

4.9

 

1,080,001

$50.00

 

20,971

 

4.6

 

20,971

$99.70 - $261.00

 

18,434

 

2.6

 

16,390

$300.00 - $980.00

 

24,799

 

2.6

 

24,799

$1,580.00 - $12,500.00

 

1,766

 

0.3

 

1,766

$31.55 *

 

1,253,115

 

4.8

 

1,143,927

*Weighted Average

Warrants exercisable as of December 31, 2022 exclude warrants to purchase 100 shares of common stock issued to a marketing firm, which vest upon the achievement of certain milestones, warrants to purchase 1,944 shares of common stock issued to Maxim which became exercisable on February 15, 2023, and warrants to purchase 107,144 shares of common stock issued to a Convertible Note Investor that require shareholder approval prior to being exercisable, which was received at a special meeting of our stockholders held on January 24, 2023. Additionally, warrants to purchase 207 shares of common stock which are shown above with a price of $1,580.00 are pre-funded warrants under which the holder shall pay $20.00 per share to complete the exercise.

23

Table of Contents

WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

7.

Income Taxes

The Company recorded a provision for income taxes of $0 for the three months ended March 31, 2023 and 2022.

The Company’s effective tax rate was 0.0% for the three months ended March 31, 2023 and 2022. The difference between the effective tax rate and the federal statutory tax rate for the three months ended March 31, 2023 and 2022 primarily relates to the valuation allowance on the Company’s deferred tax assets.

For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2023 and December 31, 2022, the Company retains a full valuation allowance on its deferred tax assets. The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

The provision for income taxes for the three months ended March 31, 2023 and 2022 was calculated on a jurisdiction basis.

8.

Commitments and Contingencies

Operating Leases

The Company leases office space under a non-cancellable operating lease that expires in January 2024 and has an option to renew this lease, with renewal rates to be negotiated. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The lease term is used to determine whether a lease is financing or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leasehold improvements is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The following table reflects our lease assets and our lease liabilities at March 31, 2023 and December 31, 2022 (in thousands):

    

March 31, 

    

December 31,

2023

2022

Assets:

Operating lease right-of-use assets

$

95

$

120

Liabilities:

 

  

 

  

Operating lease liabilities, current

$

153

$

154

Operating lease liabilities, non-current

$

$

39

Operating lease right-of-use assets are included in other assets. Operating lease liabilities, current, are included in accrued liabilities and Operating lease liabilities, non-current, are include in other liabilities on the condensed consolidated balance sheets.

24

Table of Contents

WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

8.

Commitments and Contingencies, continued

Lease Costs:

The components of lease costs were as follows (in thousands):

    

Three Months Ended

March 31, 2023

Operating lease cost

$

28

Short term lease cost

11

Total lease cost

$

39

As of March 31, 2023, the maturity of operating lease liabilities was as follows (in thousands):

2023 (remaining 9 months)

    

130

2024

 

29

Total lease payments

 

159

Less: Interest

 

(6)

Present value of lease liabilities

$

153

Lease Term and Discount Rate:

    

March 31, 2023

Weighted-average remaining lease term (in years)

 

0.8

Weighted-average discount rate

 

8.0

%

Other Information:

Supplemental cash flow information related to leases was as follows (in thousands):

    

Three Months Ended

March 31, 2023

Operating cash outflows from operating leases

$

43

Finance Lease

During August 2020, the Company entered into a lease agreement for equipment under a capital lease with a term of 36 months. The equipment under the lease is collateral for the agreement and is included within property and equipment, net on the condensed consolidated balance sheets.

Future minimum lease commitments for the finance lease as of March 31, 2023 are as follows (in thousands):

Payments due in:

 

  

Year ending December 31, 2023 (remaining 9 months)

$

9

Total minimum lease payments

 

9

Less: Amounts representing interest

 

Present value of capital lease obligations

 

9

Other liabilities

$

Obligations under the finance lease are included in accrued liabilities on the condensed consolidated balance sheets.

25

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WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

8.

Commitments and Contingencies, continued

Management Team Retention Bonus

On September 1, 2022, the Company adopted its Management Team Retention Bonus Plan (the “Retention Plan”), to incentivize certain management level employees (the “Managers”) to remain intact through and shortly following a potential “Change of Control” (as defined in the Retention Plan). The aggregate Retention Plan bonus amounts for all Managers is $1,250,000.

The Retention Plan provides that each Manager is eligible to receive a lump sum cash amount under the Retention Plan, on the earlier of the six-month anniversary of the date of a Change of Control or at the time of such Manager’s involuntary termination other than for “Cause” (as defined in the Retention Plan) or termination for “Good Reason” (as defined in the Retention Plan). The Retention Plan will terminate upon the earlier of June 30, 2023 if a Change of Control has not occurred by such date or upon the payment of all Retention Bonus Amounts. As of March 31, 2023, no accrual has been made under the Retention Plan.

Contingencies

In the normal course of business, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of a possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

The Company’s management does not believe that any such matters, individually or in the aggregate, will have a materially adverse effect on the Company’s condensed consolidated financial statements.

9.

Related Parties

Helge Kristensen

Mr. Kristensen has served as a member of the Company’s board of directors since 2010. Mr. Kristensen serves as vice president of Hansong Technology, an original device manufacturer of audio products based in China, president of Platin Gate Aps, a company with focus on service-branding in lifestyle products as well as pro line products based in Denmark and co-founder and director of Inizio Capital, an investment company based in the Cayman Islands.

For the three months ended March 31, 2023 and 2022, Hansong Technology purchased modules from the Company of approximately $24,000 and $83,000, respectively, and made no payments to the Company during those same periods. At March 31, 2023 and 2022, Hansong Technology owed the Company approximately $190,000 and $83,000, respectively.

For the three months ended March 31, 2023 and 2022, Hansong Technology sold speaker products to the Company of approximately $36,000 and $458,000, respectively, and the Company made payments to Hansong Technology of approximately $256,000 and $299,000 respectively. At March 31, 2023 and 2022, the Company owed Hansong Technology approximately $1,118,000 and $949,000, respectively.

As of March 31, 2023 and December 31, 2022, Mr. Kristensen owned less than 1.0% of the outstanding shares of the Company’s common stock.

26

Table of Contents

WISA TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(unaudited)

10.

Segment Information

The Company operates in one business segment. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results.

Net revenue from customers is designated based on the geographic region to which the product is delivered. Net revenue by geographic region for the three months ended March 31, 2023 and 2022 was as follows: