The following discussion of our financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this Report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
These forward-looking statements speak only as of the date of this Report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
We were formed as Summit Semiconductor, LLC, a Delaware limited liability company, on July 23, 2010. We converted to a Delaware corporation, effective December 31, 2017. Effective as of September 11, 2018, we changed our name to Summit Wireless Technologies, Inc. We run our operations through Summit Wireless Technologies, Inc., as well as through our wholly-owned subsidiary WiSA, LLC, a Delaware limited liability company. The address of our corporate headquarters is 15268 NW Greenbrier Pkwy, Beaverton, OR 97006. Our website address is www.summitwireless.com. The information contained in or accessible through our website is not part of this Report and is intended for informational purposes only.
We are an early stage technology company and our primary business focus is to enable mainstream consumers and audio enthusiasts to experience high quality wireless audio. We intend to continue selling our proprietary wireless modules to consumer electronics companies while also expanding our focus to implement a lower cost solution by porting our software onto commercially available internet of things ("IoT") modules with integrated Wi-Fi technology.
Our technology addresses some of the main issues that we perceive are hindering the growth of the home theater: complexity of installation and cost. We believe that consumers want to experience theater quality surround sound from the comfort of their homes. However, wired home theater systems often require expensive audio-visual ("AV") receivers to decode the audio stream, leaving the consumer with the burden of concealing the wires. Hiring a professional to hide the wires into the walls or floor is invasive, complicated, costly and time consuming. Further, people who rent as opposed to own may not be able to install these systems as the installation construction needed may not be permitted under a lease agreement. Our first-generation wireless technology addresses these problems by transmitting wireless audio to each speaker at Blu-ray quality (uncompressed 24-bit audio up to 96 kHz sample rates) and emphasizing ease of setup. To our knowledge, our custom chips and modules technology is one of the few technologies available today that can stream up to eight (8) separate wireless audio channels with low latency, removing lip-sync issues between the audio and video sources. In addition, every speaker within a system that utilizes our technology can be synchronized to less than one microsecond, thus eliminating phase distortion between speakers. Our first-generation technology shows that wireless home theater systems are viable home audio solutions for the average consumer and audio enthusiast alike.
Current research and development investments focus on developing Wi-Fi compatible software for transmitting multichannel wireless audio for which patent applications have been submitted. A software solution enables smart devices that have Wi-Fi and video media to deliver surround sound audio and allows us to port our wireless audio technology to popular Wi-Fi based modules and systems on a chip ("SOC") already shipping in volume. The Summit Wireless "Discovery" module announced in January 2021 is the first IoT module solution with our embedded wireless audio software that supports up to four separate wireless audio channels and, we believe, reduces the cost per wireless channel by over 50% for soundbars and entry level home theater applications up to a 3.1 configuration. Our goal is to continue to commercialize and improve performance of a software based-solution, which other brands can integrate into their devices, that will (i) reduce integration costs for mass market use, (ii) utilize Wi-Fi for wireless connectivity, making it easy to integrate into today's high volume, low cost SOC and modules, (iii) provide a low power consumption option to allow for use in battery powered devices, and (iv) provide compatibility with popular consumer electronic operating systems.
To date, our operations have been funded through sales of our common and preferred equity, proceeds from the exercise of warrants to purchase common stock, sale of debt instruments, and revenue from the sale of our products. Our condensed consolidated financial statements contemplate the continuation of our business as a going concern. However, we are subject to the risks and uncertainties associated with an emerging business, as noted above we have no established source of capital, and we have incurred recurring losses from operations since inception.
In January 2021, pursuant to the Company's solicitation of certain warrant holders, such warrant holders agreed to exercise warrants to purchase an aggregate of 1,221,675 shares of common stock for net proceeds of approximately $2.9 million. In consideration for their exercise of these warrants, for cash, the exercising holders are being issued new warrants to purchase up to an aggregate of 305,419 shares of common stock, at an exercise price of $4.20 per share, which are exercisable for a period of five years.
On June 4, 2021, the Company entered into an exchange agreement, pursuant to which the Company exchanged with an investor 250,000 Series A 8% Senior Convertible Preferred Stock, par value $0.0001 per share (the "Series A Preferred Stock") held by such investor for: (i) 250,000 shares of common stock and (ii) warrants to purchase up to 187,500 shares of common stock. In connection with exchange agreement the Company recorded a deemed dividend of $1,192,000. The warrants were exercisable for a period of five (5) years and four (4) months. The exercise price with respect to the warrants was $3.00 per share. The exercise price and the number of shares of common stock issuable upon exercise of the warrants were subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. In June 2021, the investor subsequently fully exercised such warrant on a cashless basis for 79,244 shares of common stock.
On June 7, 2021, pursuant to the Company's solicitation of certain warrant holders, such warrant holders agreed to exercise warrants to purchase an aggregate of 1,000,000 shares of common stock for net proceeds of approximately $2.3 million. In consideration for their exercise of such warrants for cash, such holders were issued new warrants to purchase up to an aggregate of 250,000 shares of common stock at an exercise price of $4.46 per share, which are exercisable for a period of five years.
On July 22, 2021, the Company entered into a securities purchase agreement (the "July 22nd Purchase Agreement") with several accredited investors providing for the issuance of 2,500,000 shares of the Company's common stock. Pursuant to the July 22nd Purchase Agreement, the investors purchased all of the securities sold thereby for an aggregate purchase price of $10,000,000. Pursuant to the July 22nd Purchase Agreement, an aggregate of 2,500,000 shares of common stock were issued to the investors in a registered direct offering pursuant to a prospectus supplement to the Company's currently effective registration statement on Form S-3, which was declared effective on September 6, 2019. The offering of the securities pursuant to the July 22nd Purchase Agreement was closed on July 27, 2021, with the Company receiving net proceeds of $9,026,000.
Potential Impacts of the Novel Coronavirus ("COVID-19") on Our Business and Operations
The COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business partners.
Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to impact on our business in March 2020. By that time, much of our first fiscal quarter of 2020 was completed. During our second fiscal quarter of 2020, we observed decreased demand from certain of our customers due to the temporary closure by many retailers. Our third and fourth fiscal quarters of 2020 and in each of our fiscal quarters of 2021 saw sustained improved customer demand as retailers slowly reopened and demand for an in-home immersive cinema experience increased, following the initial closure of many public cinemas due to COVID-19. However, another closure by retailers could impact customer demand in the future.
Given the fact that our products are sold through a variety of distribution channels, we have experienced and we continue to expect that our sales will experience some volatility as a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic. We are aware that many companies, including many of our suppliers and customers, are reporting or predicting negative impacts from COVID-19 on future operating results. To date, we have experienced shipment delays from our suppliers due to COVID-19, however we do not believe such delays will have a material adverse impact on our operating results and we have not experienced a material supply interruption. There can be no assurance that we will not experience material supply delays or interruptions in the future due to COVID-19.
To date, travel restrictions and border closures have not materially impacted our ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in a way that would harm our business over the long term. Travel restrictions impacting people can restrain our ability to assist our customers and distributors as well as impact our ability to develop new distribution channels, but at present we do not expect these restrictions on personal travel to be material to our business operations or financial results.
Our plan of operation is to focus our efforts in offering a suite of technologies that will enable mainstream consumers and audio enthusiasts to experience high quality audio. We intend to continue selling our semiconductors and wireless modules to consumer electronics companies while also increasing our focus on implementing a software licensing business segment.
We have designed wireless modules that provide high performance wireless audio for our customers to build into their products like a speaker, TV, or dongle for example. These modules include our custom semiconductors with our IP built in as well as a Wi-Fi radio for communications. By designing and selling these modules we can reduce our customers design expense, accelerate their time-to-market cycle, and reduce the cost of each module. Summit offers both a "TX" module to transmit the audio from a host device like a media hub, TV or dongle to WiSA-enabled speakers and an "RX" model for speakers, that receives the wireless audio signal and processes it for audio play out.
The primary growth segments for in home entertainment have been "Bluetooth" stereo accessories which include single speakers, headsets, and more recently, "multi-room" stereo speakers that use your home's Wi-Fi network to stream audio throughout the house.
The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, our observance of trends in the industry and information available from other outside sources, as appropriate. Please see Note 1 of the Notes to the Consolidated Financial Statements for a more complete description of our significant accounting policies.
We utilize the extended transition period provided in Securities Act Section 7(a)(2)(B) as allowed by Section 107(b)(1) of the JOBS Act for the adoption of new or revised accounting standards as applicable to emerging growth companies. As part of the election, we will not be required to comply with any new or revised financial accounting standard until such time that a company that does not qualify as an "issuer" (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such new or revised accounting standards.
As an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditor's attestation report on our internal control in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies.
Comparison of the Years Ended December 31, 2021 and 2020
Revenue for the year ended December 31, 2021 was $6,541,000, an increase of $4,137,000, or 172%, compared to the revenue of $2,404,000 for the year ended December 31, 2020. The increase was a result of higher sales volumes, of which Component revenue increased by $3,241,000, and from the first full year of Consumer Audio Product sales which increased revenue an additional $896,000 over the prior year.
Gross Profit and Operating Expenses
Gross profit for the year ended December 31, 2021 was $1,864,000, an increase of $1,437,000 compared to $427,000 gross profit for the year ended December 31. 2020. The increase in gross profit is mainly attributable to higher volumes of Component sales and the contribution from sales of the Consumer Audio Products. The gross margin as a percent of sales was 28.5% for the year ended December 31, 2021 compared to 17.8% for the year ended December 31, 2020, an increase of 10.7 points. The increase in gross margin is mainly attributable to benefits of scale associated with the fixed portion of costs and increasing volumes.
Research and development expenses for the year ended December 31, 2021 were $5,236,000, an increase of $664,000, compared to expenses of $4,572,000 for the year ended December 31, 2020. The increase in research and development expenses is primarily related to increased salary and benefit expense of $700,000 and increased stock-based compensation and consulting expense of $142,000 and $166,000, respectively, partially offset by lower recruiting fees of $86,000 and reduced facility allocation expense of $273,000.
Sales and marketing expenses for the year ended December 31, 2021 were $4,123,000, an increase of $1,149,000, compared to expenses of $2,974,000 for the year ended December 31, 2020. The increase in sales and marketing expenses is primarily related increased salary, incentive compensation and benefit expenses of $403,000, website development and advertising expenses of $378,000 and $489,000, respectively partially offset by lower consulting fees of $64,000.
General and administrative expenses for the year ended December 31, 2021 were $4,016,000, a decrease of $152,000, compared to expenses of $4,168,000 for the year ended December 31, 2020. The decrease in general and administrative expenses is primarily related to increased salary, incentive compensation and benefit expenses of $151,000, increased stock-based compensation and board fees of $32,000 and $65,000, respectively, offset by reduced settlement expenses of $1,038,000 recorded in 2020.
Interest expense, net for the year ended December 31, 2021 was $9,000, compared to $1,397,000 for the year ended December 31, 2020. Minimal interest expense, net for the year ended December 31, 2021, was primarily related to interest accrued on the PPP loan which was forgiven in the third quarter of 2021. Interest expense, net for the year ended December 31, 2020 was primarily due to the full amortization of debt discounts associated with the convertible debt that the Company incurred in March 2020, as such convertible debt was fully repaid in April 2020.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability for the year ended December 31, 2021 was $0, compared to a gain of $16,000 for the year ended December 31, 2020. There was no change in the fair value of the warrant liability for the year ended December 31, 2021, compared to a gain of $16,000 due to the change in fair value of the warrant liability for the year ended December 31, 2020. The gain for the year ended December 31, 2020 was due to the decrease in our common stock price during the period.
Gain on Forgiveness of Paycheck Protection Program Loan
Change in the gain on forgiveness of the Paycheck Protection Program Loan for the year ended December 31, 2021 was $859,000, compared to $0 for the year ended December 31, 2020. The Company recorded a gain of $859,000 due to the forgiveness of the Paycheck Protection Loan for the year ended December 31, 2021. No such forgiveness occurred during the year ended December 31, 2020.
The Company recorded a charge of $1,146,000, in connection with the fair value of warrants issued to warrant holders in connection with a solicitation of such warrant holders to exercise their outstanding warrants during the year ended December 31, 2021.
Deemed Dividend on Exchange of Convertible Preferred Stock for Common Stock
During the year ended December 31, 2021, the Company recorded a deemed dividend of $1,192,000 in connection with the exchange of all 250,000 shares of preferred stock for 250,000 shares of common stock and warrants to purchase up to 187,500 shares of common stock, which warrants were subsequently fully exercised on a cashless basis for 79,244 shares of common stock. No such deemed dividend occurred the year ended December 31, 2020.
Cash and cash equivalents as of December 31, 2021 were $13,108,000, compared to $7,415,000 as of December 31, 2020.
We used net cash in operating activities of $11,508,000 for the year ended December 31, 2021. For the year ended December 31, 2020, we used net cash in operating activities of $9,859,000. Excluding the net loss and non-cash adjustments, the increase in the use of net cash from operating activities during the year ended December 31, 2021, was primarily related to the increase in inventories, partially offset by an increase in accounts payable.
We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments. In July 2021, we raised approximately $9,026,000 in net proceeds in a registered direct offering from the issuance and sale of 2,500,000 shares of common stock at a price of $4.00 per share. For the year ended December 31, 2021, we raised net proceeds of approximately $8,303,000 from exercises of warrants which were acquired by investors in conjunction with such financings completed during fiscal 2020. In 2020, the Company raised net proceeds of $16,156,000 through the issuance of Common Stock, prefunded warrants and related warrants. As of December 31, 2021, warrants exercisable for approximately 3,527,965 shares of common stock, remain outstanding, with exercise prices ranging from $1.52 to $3.90 per share. We believe that our current level of liquid assets will be sufficient to fund our operations through the balance of fiscal 2022.
The 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 December 31, 2021, the Company had cash and cash equivalents of $13.1 million and reported net cash used in operations of $11.5 million during the year ended December 31, 2021. In December 2021, the Company entered into an "at-the-market" sales agreement with Maxim Group LLC (the "Agent"), pursuant to which the Company may sell from time to time, shares of its common stock having an aggregate offering price of up to $4.5 million through the Agent. As of December 31, 2021, the Company has not sold any shares of common stock under the ATM Program. 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 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 sales of its common stock in public markets, sales of common and preferred units prior to its initial public offering ("IPO"), and proceeds from the exercise of warrants to purchase common stock and the sale of convertible notes. 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.
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 consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
We have no off-balance sheet arrangements.
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