Datavault AI Inc. quarterly report, Q3 FY2019

Filing identity and period

This is Summit Wireless Technologies, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019, filed November 14, 2019 (ticker WISA). The request identifies Datavault AI Inc., but the supplied filing is for a different issuer; confirm the intended company before relying on this summary.

Summit develops wireless audio integrated circuits and modules for consumer and professional audio markets, and described itself as an early-stage company pursuing product sales and software licensing. Financial statement amounts below are in thousands of dollars unless stated otherwise.

Financial results and liquidity

MetricQ3 2019Q3 2018Nine months 2019Nine months 2018
Revenue$419$385$1,236$1,046
Gross profit (loss)$32$(28)$112$(198)
Gross margin7.6%(7.3)%9.1%(18.9)%
Operating expenses$2,711$2,934$8,174$8,561
Operating loss$(2,679)$(2,962)$(8,062)$(8,759)
Net loss$(2,708)$(31,852)$(8,097)$(64,617)
Net loss attributable to common stockholders$(2,728)$(31,852)$(8,133)$(64,617)
  • Revenue rose 9% for Q3 and 18% for the nine-month period, which management attributed to higher module sales. Asia Pacific was the largest reported revenue region in both 2019 periods.
  • Gross profit improved from a loss in both prior-year periods. Operating losses narrowed, but remained substantial; R&D spending increased to $4,195 for the nine months.
  • The much smaller year-over-year net loss largely reflects the absence of 2018 debt-related interest and fair-value charges. For the nine months, 2018 included $33,502 of interest expense and $14,294 of derivative-liability fair-value expense; 2019 had no interest expense and $171 of derivative fair-value expense.
  • Cash used in operating activities was $8,454 for the nine months, versus $7,086 in 2018. Financing provided $5,564, mainly from common-stock and preferred-stock offerings. Cash fell to $284 at September 30 from $3,218 at year-end 2018.
  • At September 30, current assets were $3,313 and current liabilities were $1,729. Total assets were $3,541; total liabilities were $2,137, including a $387 derivative liability and $21 warrant liability. The company reported no outstanding debt. Series A preferred stock had a $1,036 liquidation preference; stockholders’ equity was $907.

Material changes, financing and capital structure

  • In April 2019, Summit issued 250,000 shares of 8% Series A senior convertible preferred stock for $1 million gross proceeds ($920 net), with conversion terms subject to adjustments and a $1.50 floor. It also issued warrants. Preferred dividends accrued $36 through September 30.
  • A May 2019 public offering of 4,075,726 common shares at $1.33 per share generated approximately $5,420 gross and $4,664 net proceeds. Common shares outstanding at September 30 were 20,452,480, up from 15,366,327 at December 31, 2018.
  • The company’s September warrant repricing generated $67 gross proceeds from exercise of 83,520 shares and reduced the exercise price on some remaining warrants. The filing reports 8,906,955 common-stock warrants outstanding at September 30.
  • Subsequent to quarter-end, October warrant exercises and related transactions generated approximately $1,163 gross proceeds, including pre-funded warrants. The company also agreed to issue additional shares or cash under November settlement agreements related to the repricing.
  • On October 16, 2019, Summit sold 2.5 million common shares for $0.70 each, reporting approximately $1.8 million gross and $1.4 million net proceeds for working capital.

Outlook, risks and unusual items

  • Going concern: Management said recurring losses, $284 of cash, negative operating cash flow and the need for further funding raise substantial doubt about the company’s ability to continue as a going concern. It expects losses to continue and said additional equity or debt financing is needed; availability and terms are not assured. The doubt was not alleviated.
  • Nasdaq listing: The company received notice that its share price had been below the $1.00 minimum bid for 30 consecutive business days. It had until April 13, 2020 to regain compliance, including by trading at or above $1 for at least 10 consecutive business days; delisting remained a risk, and a reverse split was identified as a possible option.
  • Controls: Management concluded disclosure controls and procedures were not effective as of September 30, 2019. It reported no material changes to internal control over financial reporting during the quarter.
  • Business concentration and execution risks: Three customers represented 56%, 20% and 17% of Q3 revenue; two customers represented 48% and 45% of receivables. The company relies on sole-source suppliers and contractors in China and Japan. Other stated risks include technology changes, competition, product acceptance and protection of proprietary technology.
  • Preferred-stock terms: Series A has cumulative 8% dividends, conversion-price adjustment provisions, financing participation rights and potential enhanced redemption payments and an 18% dividend rate upon specified triggering events.
  • Management reported no pending legal proceeding expected to have a material adverse effect and no off-balance-sheet arrangements. The filing provides no formal financial guidance or quantified revenue outlook.

Key facts for investors to verify

  1. Confirm the issuer: the supplied filing is Summit Wireless Technologies, Inc., not Datavault AI Inc.
  2. Assess funding needs and cash runway against the going-concern warning and reported operating cash use.
  3. Review the full terms and dilution implications of Series A preferred stock, outstanding warrants, warrant repricing and post-quarter-end financings.
  4. Track Nasdaq bid-price compliance and any reverse-split or additional financing actions.
  5. Investigate the cause and remediation plan for ineffective disclosure controls, and evaluate customer and supplier concentration.