Filed Pursuant to Rule 424(b)(3)
Registration No. 333-239845
PROSPECTUS
Summit Wireless Technologies, Inc.
91,062 Shares of Common Stock
Up to 50,087 Shares of Common Stock underlying
Warrants
This prospectus relates to the offer and
resale of up to an aggregate of 141,149 shares of common stock of Summit Wireless Technologies, Inc. (the “Company”,
“we”, “us” or “our”), which consists of (i) 91,062 shares of our common stock (the “Shares”),
par value $0.0001 per share (the “Common Stock”), and up to 45,534 shares (the “Investor Warrant Shares”)
of our Common Stock issuable upon exercise of common stock purchase warrants issued by us to investors (the “Investor Warrants”)
in connection with a private placement transaction conducted by the Company in February 2020 (the “February 2020 Private
Placement”), whereby an aggregate of 91,062 Shares and Investor Warrants to purchase up to an aggregate of 45,534 Investor
Warrant Shares were issued to such investors, and (ii) up to 4,553 shares of Common Stock (the “Placement Agent Warrant Shares”
and collectively with the Investor Warrant Shares, the “Warrant Shares”) issuable upon exercise of a common stock purchase
warrant (the “Placement Agent Warrant” and collectively with the Investor Warrants, the “Warrants”) issued
to Alexander Capital, L.P. (“Alexander”) as partial compensation for serving as placement agent for the February 2020
Private Placement. The holders of the Shares, the Warrants and the Warrant Shares are each referred to herein as a “Selling
Stockholder” and collectively as the “Selling Stockholders”.
This prospectus also covers any additional
shares of Common Stock that may become issuable upon any anti-dilution adjustment pursuant to the terms of the Warrants issued
to the Selling Stockholders by reason of stock splits, stock dividends, and other events described therein.
The Shares and Warrant Shares will be
resold from time to time by the Selling Stockholders listed in the section titled “Selling Stockholders” beginning
on page 26.
The Selling Stockholders, or their respective
transferees, pledgees, donees or other successors-in-interest, may sell the Shares and Warrant Shares through public or private
transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The
Selling Stockholders may sell any, all or none of the securities offered by this prospectus, and we do not know when or in what
amount the Selling Stockholders may sell their Shares and Warrant Shares hereunder following the effective date of this registration
statement. We provide more information about how a Selling Stockholder may sell its Shares and Warrant Shares in the section titled
“Plan of Distribution” on page 30.
We are registering the Shares and the Warrant
Shares on behalf of the Selling Stockholders, to be offered and sold by them from time to time. While we will not receive any proceeds
from the sale of our Common Stock by the Selling Stockholders in the offering described in this prospectus, we will receive $9.80
per share upon the cash exercise of each of the Investor Warrants and $8.80 per share upon the cash exercise of the Placement Agent
Warrant. Upon exercise of the Warrants for all 50,087 Warrant Shares by payment of cash, however, we will receive aggregate gross
proceeds of $486,299.60. However, we cannot predict when and in what amounts or if the Warrants will be exercised, and it is possible
that the Warrants may expire and never be exercised, in which case we would not receive any cash proceeds. We have agreed to bear
all of the expenses incurred in connection with the registration of the Shares and the Warrant Shares. The Selling Stockholders
will pay or assume discounts, commissions, fees of underwriters, selling brokers or dealer managers and similar expenses, if any,
incurred for the sale of the Shares and the Warrant Shares.
Our Common Stock is currently listed on
the Nasdaq Capital Market under the symbol “WISA.”
We are an “emerging growth company”
as the term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected
to comply with certain reduced public company reporting requirements for this and future filings. This prospectus describes
the general manner in which the Shares and the Warrant Shares may be offered and sold. If necessary, the specific manner in which
the Shares and the Warrant Shares may be offered and sold will be described in a supplement to this prospectus.
Investing in our Common Stock involves
risks. You should carefully review the risks described under the heading “Risk Factors” beginning on page 12 and
in the documents which are incorporated by reference herein before you invest in our securities.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is July 23,
2020.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus describes the general manner
in which the Selling Stockholders may offer from time to time up to 141,149 shares of Common Stock, consisting of 91,062 Shares
and up to 50,087 Warrant Shares issuable upon the exercise of the Warrants. You should rely only on the information contained in
this prospectus and the related exhibits, any prospectus supplement or amendment thereto and the documents incorporated by reference,
or to which we have referred you, before making your investment decision. Neither we nor the Selling Stockholders have authorized
anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should
not rely on it. This prospectus, any prospectus supplement or amendments thereto do not constitute an offer to sell, or a solicitation
of an offer to purchase, the Common Stock offered by this prospectus, any prospectus supplement or amendments thereto in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction.
You should not assume that the information contained in this prospectus, any prospectus supplement or amendments thereto, as well
as information we have previously filed with the U.S. Securities and Exchange Commission (the “SEC”), is accurate as
of any date other than the date on the front cover of the applicable document.
If necessary, the specific manner in which
the shares of Common Stock may be offered and sold will be described in a supplement to this prospectus, which supplement may also
add, update or change any of the information contained in this prospectus. To the extent there is a conflict between the information
contained in this prospectus and any prospectus supplement, you should rely on the information in such prospectus supplement, provided
that if any statement in one of these documents is inconsistent with a statement in another document having a later date—for
example, a document incorporated by reference in this prospectus or any prospectus supplement—the statement in the document
having the later date modifies or supersedes the earlier statement.
Neither the delivery of this prospectus
nor any distribution of Common Stock pursuant to this prospectus shall, under any circumstances, create any implication that there
has been no change in the information set forth or incorporated by reference into this prospectus or in our affairs since the date
of this prospectus. Our business, financial condition, results of operations and prospects may have changed since such date.
When used herein, unless the context requires
otherwise, references to the “Summit,” “Company,” “we,” “our” and “us”
refer to Summit Wireless Technologies, Inc., a Delaware corporation.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus, any applicable prospectus
supplement or amendment and the information incorporated by reference in this prospectus contain various forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”), which represent our expectations or beliefs concerning future events. Forward-looking statements
include statements that are predictive in nature, which depend upon or refer to future events or conditions, and/or which include
words such as “believes,” “plans,” “intends,” “anticipates,” “estimates,”
“expects,” “may,” “will” or similar expressions. In addition, any statements concerning future
financial performance, ongoing strategies or prospects, and possible future actions, which may be provided by our management, are
also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events
and are subject to risks, uncertainties, and assumptions about our company, economic and market factors, and the industry in which
we do business, among other things. These statements are not guarantees of future performance, and we undertake no obligation to
publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as
required by law. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements
due to a number of factors. Factors that could cause our actual performance, future results and actions to differ materially from
any forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in
any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. The forward-looking statements
in this prospectus, the applicable prospectus supplement or any amendments thereto and the information incorporated by reference
in this prospectus represent our views as of the date such statements are made. These forward-looking statements should not be
relied upon as representing our views as of any date subsequent to the date such statements are made.
INDUSTRY AND MARKET DATA
Unless otherwise indicated, information
contained in this prospectus concerning our industry and the market in which we operate, including our market position, market
opportunity and market size, is based on information from various sources, on assumptions that we have made based on such data
and other similar sources and on our knowledge of the markets for our products. These data sources involve a number of assumptions
and limitations, and you are cautioned not to give undue weight to such estimates.
We have not independently verified any
third-party information. While we believe the market position, market opportunity and market size information included in this
prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates
of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree
of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors”
and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the
estimates made by the independent parties and by us.
OUR COMPANY
This summary highlights information
contained in the documents incorporated herein by reference. Before making an investment decision, you should read the entire prospectus,
and our other filings with the SEC, including those filings incorporated herein by reference, carefully, including the sections
entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Overview
We believe that the future of audio technology
is in wireless devices and that Summit is well positioned to deliver best-in-class immersive wireless sound technology for intelligent
devices and next generation home entertainment systems. We currently sell modules which wirelessly transmit and receive audio directly
to speakers. Additionally, we plan to license our proprietary software technology, currently embedded in our wireless modules,
to other companies who can then embed our technology into other Wi-Fi enabled smart devices. The segment of the wireless audio
market that Summit focuses on is comprised of scalable multichannel solutions with levels of latency that are low enough to synchronize
with video. The term multichannel refers to the use of multiple audio tracks to reconstruct a sound field using multiple speakers.
As part of the effort to grow the wireless
multichannel home audio segment, Summit was a founding member of the WiSA Association, an association dedicated to providing industry
leadership and consumer choice through interoperability testing between brands. There are currently over 60 brands participating
in the WiSA Association. Products certified and marked with a WiSA Association logo have been tested to interoperate. This preserves
consumer choice by enabling consumers to choose different wireless transmitting products across different brands where audio is
decoded with speakers that have the WiSA Association logo displayed. Our marketing strategy focuses on, what we believe, are two
emerging wireless audio market needs: better audio quality and lower signal latency. Summit currently sells custom semiconductor
chips and wireless modules to a growing list of consumer electronics customers, including major brands in the consumer electronic
industry. We believe that a growing adoption of our technology by leaders in this industry will revolutionize the way people experience
media content through their mobile devices, televisions (“TVs”), game consoles and personal computers (“PCs”).
Our Business Focus
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.
Industry Background
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 information
contained in or accessible through the foregoing website is not part of this prospectus or the registration statement of which
this prospectus forms a part, and is for informational purposes only.
Our Technology
Our technology addresses some of the main
issues that we perceive are hindering the growth of the home theater: complexity 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 that
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, Summit’s
custom chips and modules technology is one of the only 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. Summit’s first-generation technology shows that wireless home theater systems are viable home audio solutions for
the average consumer and audio enthusiast alike.
Summit is currently developing certain
proprietary software for which patent applications have been submitted that we believe will allow us to enable smart devices that
have Wi-Fi and video media to deliver surround sound audio. A prototype version of our software technology has been demonstrated
to select customers (pursuant to confidentiality agreements) at recent Consumer Electronics Shows in Las Vegas, Nevada. Our goal
is to commercialize 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 systems on a chip (“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.
WiSA Association
Our wholly-owned subsidiary, WiSA, LLC,
operates the WiSA Association, which is an association comprised of brands, manufacturers, and influencers within the consumer
electronics industry, all of which agree that a standardized method of interoperability between wireless audio components should
exist, and most of which believe that products should be brought to market with this goal in mind. The WiSA Association creates,
maintains and manages specifications for wireless interoperability that are available to all association members. For products
with a WiSA Association certification, the WiSA Association also creates, maintains and manages testing criteria and specifications
for all products to be listed, marketed and sold. WiSA-certification is an industrywide “stamp of approval” certifying
that a product is interoperable with other products in the WiSA ecosystem and has passed several high-performance tests ensuring
interoperability and wireless performance standards are met. As the sole owner of WiSA, LLC, we certify all WiSA Association products.
In 2018, the Company introduced the WiSA
ReadyTM certification. The WiSA ReadyTM certification identifies entertainment sources – such as TVs, gaming systems or computers
– that are equipped to deliver up to eight (8) channels of HD audio to WiSA-certified speakers when connected with a WiSA
Universal Serial Bus (“USB”) transmitter. This program simplifies consumer set-up and reduces costs by replacing AV
receivers or wireless hubs with a low-cost USB accessory. We believe that using WiSA ReadyTM products allows consumers to more
simply and conveniently enjoy wireless multi-channel sound, eliminating the clutter, wires and complicated installs generally required
to create immersive audio experiences. LG Electronics introduced two premium model lines, OLED and Nanocell TVs, as WiSA ReadyTM
TVs in 2019 and has continued the feature in their 2020 TVs. The Company expects two to three other TV projects to go into production
in 2020 and anticipates three to four additional TV brands to be marketing WiSA projects in 2021.
Currently, WiSA-certified products are
required to use Summit modules in order to meet the standards set by the WiSA Association. As a result, WiSA Association members
purchase modules from us in order to build their products to meet such standards.
Among WiSA-certified products, consumers
will be able to outfit their home entertainment system with WiSA-certified speakers and components from any participating vendor
with the assurance that the devices will interoperate and provide high quality wireless HD surround sound.
The WiSA Association manages logo usage
and trademark guidelines, investigates alternative markets, connects brands to manufacturing resources, and, we believe, provides
industry leadership in solving the challenges facing the home theater and commercial markets in the integration of wireless audio
technology.
WiSA Association web traffic has experienced
recent dramatic growth in unique user visits to its site. Traffic increased by 1,199 visits in the first quarter of 2019, 2,259
visits during the second quarter of 2019, 3,434 visits during the third quarter of 2019, 19,217 visits during the fourth quarter
of 2019 and 34,235 visits during the first quarter of 2020. The WiSA Association utilizes Google analytics to identify and measure
unique user web traffic.
Modules
Summit has designed wireless modules that
provide high performance wireless audio for our customers to integrate into their products, such as a speaker, TV, media hubs and
USB or HDMI dongles. These modules include our custom semiconductors with our intellectual property (“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 receive the wireless audio signal and processes it for audio play out.
Modules for Consumer Products
Summit’s TX modules are targeted
for integration into TVs, AV receivers, media hubs and USB or HDMI dongles. Summit’s transmitter, with its integrated antenna,
is designed to support rooms as large as 10-meters by 10-meters with uncompressed, 24-bit audio up to 96 kHz sample rate. The module
supports a simple interface, with Inter-IC Sound (“I2S”) or USB audio and control. In addition, Summit’s technology
has been approved by Digital Content Protection, LLC, the licensing agency for High-bandwidth Digital Content Protection, as an
audio only output technology for retransmission of audio content.
Summit’s receiver interfaces to a
digital amplifier and is designed to be integrated directly into a home theater speaker. The four printed circuit board antennas
simplify system integration while providing robust reception of 24-bit audio up to 96 kHz sample rates virtually anywhere within
a 10-meter by 10-meter space. It supports one or two separate audio outputs via I2S. An optional interface on the receiver module
can be enabled to configure the speaker type and provide volume/mute control at the speaker. Alternatively, the speaker type can
be assigned at the factory for preconfigured Home Theater in a Box applications.
The Summit Opportunity
We believe that the following attributes:
cost, mobility, video support, ease of installation and quality create a market opportunity for Summit’s technologies to
be adopted by the consumer electronics industry as described further below.
Cost
We believe that the simplicity and cost
structure of our current WiSA USB transmitter and upcoming embedded software solution will make our prices competitive for a wider
range of applications, allowing consumer electronics companies to integrate our technology, while also delivering high quality
audio.
Mobility
Mobile devices are popular for streaming
video, gaming and using virtual reality applications. We believe that this is driving a need for an embedded high-fidelity wireless
solution in the mobile device that can transmit audio to headsets or speakers within a room. Summit’s technology enables
high quality wireless audio transmission from mobile devices.
Video Support
Wireless audio capable of supporting video
has become a priority for consumers across a variety of high-volume multimedia platforms, including TV’s, smartphones, game
consoles and set-top boxes. Video applications require audio and video to be perfectly synchronized in order to avoid lip-sync
and speaker audio phase distortion issues. Summit’s technology prioritizes low latency and synchronization to less than one
microsecond, thus practically eliminating phase distortion between speakers.
Ease of Installation
We believe that the home theater market
has moved toward simplicity in recent years. The costly and inconvenient home theaters of the past have left consumers with a desire
for audio systems that provide a simplified installation process. We believe that new audio systems, including the predominant
sound bar system, are unable to provide high levels of performance, especially in the surround-sound market. Summit’s technology
greatly simplifies the installation process of true surround-sound systems. This allows consumers to install a home theater system
with the same amount of effort as a sound bar, but enjoy a far superior experience. We believe that an overwhelming majority of
the content entering consumers’ homes through digital TV and streaming services is provided in a multi-channel format, which
is why Summit’s goal is to facilitate enjoyment of true surround sound for both the everyday consumer and audio enthusiast.
In addition to easy installation, Summit
modules provide consumers with a multitude of options, allowing customization of a home theater specific to each consumer, without
being forced to stick with one brand of speaker. For example, our hope is that a consumer might start with a Summit enabled sound
bar for their TV and then add a Summit enabled subwoofer. That same system can be easily upgraded to a variety of surround sound
systems by simply adding more speakers. Our technology will allow consumers to upgrade an audio system or just one component of
the system without the need to replace the entire system. Consumers can keep the original transmitter, sound bar, and subwoofer
and integrate them seamlessly into a new system. Being able to outfit a home entertainment system with Summit-enabled speakers
and components gives consumers the ability to express their individual preference and needs and provides the assurance that the
devices will interoperate, delivering what we believe is the highest standard in HD wireless surround sound.
Dissatisfaction with Bluetooth Performance
and Quality
We believe that consumers want better performance
and quality from their Bluetooth audio devices. For example, they may want headsets that stay connected over longer distances or
products that offer better audio fidelity. By offering a solution that addresses these needs at a comparable price point to Bluetooth,
we believe that we can build consumer demand for our technology.
Profitability of Audio Component Accessories
High-definition televisions (“HDTVs”)
are getting thinner and it is becoming increasingly difficult to incorporate the latest electronic advances into such thin displays.
Over two hundred million smart TVs are currently sold annually. We expect that eventually most of the electronics will be external
to the display. We believe that the first physical feature to be removed from HDTVs will be the audio component, since there is
very little room for quality speakers in today’s thin displays. We believe that HDTV manufacturers know that they need to
provide an audio alternative. Additionally, since cost is a significant consideration, we believe that some manufacturers may offer
external sound bars which will satisfy some consumers, but perhaps not the consumers who desire a high-quality audio alternative.
Over thirty-five million sound bars are forecasted to be sold in 2020 by Statista. We believe that these developments are creating
an inflection point in the market, and manufacturers are looking to Summit’s technology to create a standard for wireless
audio interoperability that will support a long-term product strategy for the successful development of high quality, wireless
audio products. By designing speaker systems that incorporate Summit’s technology, consumer electronics companies will be
able to sell easy-to-install surround sound audio solutions alongside TVs.
Enjoyment of improved audio on existing
content
We believe that the growth in the number
of video devices streaming multi-channel audio content, coupled with new 3D immersive sound experiences from Dolby’s ATMOS
and DTS’ DTSx formats, will help propel the demand for wireless speakers well into the future.
Enjoyment of wireless audio without
interference from other wireless signals
Having other devices nearby that also use
the 5 GHz band should not affect the performance of a Summit-enabled audio system, as Summit’s technology can seamlessly
switch to another frequency within the 5 GHz band. The 5 GHz U-NII spectrum utilized by Summit technology has up to 24 channels
available that are constantly monitored for interference using the Dynamic Frequency Selection sub-band between 5.2 and 5.8 GHz.
When interference is detected, the next channel, having been monitored for over one minute and confirmed for accessibility, is
ready to be accessed and Summit-enabled devices switch seamlessly to that channel, without the user ever noticing or the audio
experience being affected.
What Distinguishes Summit from its Competitors
Both the proprietary technology and the
adoption of the technology by leaders in consumer electronics are differentiating factors for Summit. Our management believes that
Summit is one of the only companies with the technical capabilities of transmitting high resolution, low latency, and speaker synchronization
of wireless audio capable of supporting up to 8 channels. Premium consumer brands, like Bang & Olufsen, Harman International,
a division of Samsung and LG Electronics, have begun to adopt our technology as a valued feature in performance products.
Category Defining Wireless Audio
Our wireless audio technology delivers
8 channels of uncompressed audio directly to the speakers in 24-bit and up to 96 kHz sample rates. This means that a consumer can
experience audio exactly as it was mastered in the studio. Summit’s technology supports surround sound systems up to 7.1
or 5.1.2 for Dolby ATMOS configurations.
Alternative technologies such as, standard
Bluetooth and WiFi protocols were not designed to transmit real-time audio synchronized to video. Standard Bluetooth and WiFi technologies
work best for audio only applications when video is not a part of the listening experience. In audio-only applications, latency
is less critical and can be buffered in memory to insure proper speaker synchronization even when audio data retransmissions are
needed in today’s congested wireless environments. In video applications, retransmissions add to latency. Standard Bluetooth
and WiFi protocols have long variable latency that can exceed 50ms, resulting in lip-sync issues and variable speaker synchronization,
making quality multichannel audio experience unachievable. A few custom software and or silicon-based solutions exist today that
improve performance, but compared to Summit, such products have longer latencies, lower performing speaker synchronization, and
are limited to 2-4 audio channels and often limited to 16-bit CD quality audio.
Summit’s technology roadmap includes
proprietary software, currently in development, that will support Wi-Fi protocol. This proprietary software has been designed to
scale in the number of wireless audio channels and sample rates supported as Wi-Fi performance or network utilization changes.
Summit Customers
Summit currently sells wireless modules
containing custom semiconductor chips to a growing list of consumer electronics customers, including major brands such as Axiim,
Bang & Olufsen, Enclave Audio, Klipsch, LG, Harman International, a division of Samsung, Sharp, Savant and System Audio. We
believe that the use of our products by well-known consumer electronics brands will provide an opportunity to create wireless audio
products that are simple to install and perform at high levels. Brands such as Bang & Olufsen and Klipsch have chosen Summit
technology to drive their wireless home audio/theater product assortments. We believe that their leadership has brought credibility
to the technology and paved the way at retail for other brands to follow.
Our Strategy
Our goal is to establish and maintain a
leadership position as the ubiquitous standard for hi-fidelity wireless, multi-channel audio. To obtain and enhance our position
as the leading standard in the audio space, we intend to:
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improve recognition of our Summit brand and the WiSA Association standard brand;
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provide excellent products and services to our customers and members;
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make sure our technology is accessible to many consumers by having our technology in consumer electronics devices that sell at a variety of price points;
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expand market awareness of wireless multi-channel hi-fidelity audio experience availability;
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enhance and protect our IP portfolio;
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invest in highly qualified personnel; and
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build innovative products alongside the world’s leading consumer electronics companies.
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We currently sell our modules in relatively
small quantities. As new customers introduce Summit-enabled products and current customers introduce second and third generation
Summit-enabled products, we expect that orders for our modules will increase proportionally. With larger orders, we believe that
we can take advantage of economies of scale and improve our gross margins on our modules.
Interoperability
Interoperability is a key aspect of wireless
technology. We believe that this is especially true with audio technology, where unique designs, price points, audio quality and
capabilities as well as consumer brand loyalties are significant factors for the end consumer. Creating home theater and audio
components that all work with an interoperable standard creates a high level of confidence in retailers and consumers in the functionality
of the entire entertainment system. Interoperability also increases the opportunity for specialized brands to create new and innovative
products, knowing they can focus on their specific part of the market and rely on others to create the necessary cohort components.
Corporate Information
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,
at which time we changed our name to Summit Semiconductor, Inc. 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.
Where You Can Find Us
Our principal executive offices are located
at 6840 Via Del Oro, Ste. 280, San Jose, CA 95119 and our telephone number is (408) 627-4716. Our website address is www.summitwireless.com.
The website for the WiSA Association is http://www.wisaassociation.org. The information contained on, or that can be
accessed through, our websites is not incorporated by reference into this prospectus and is intended for informational purposes
only.
Summit Wireless Technologies, Summit Semiconductor,
Summit WirelessTM, the Summit Wireless Technologies, Inc. logo, the WiSA logo and other trade names, trademarks or service
marks of Summit Wireless Technologies, Inc. appearing in this prospectus are the property of Summit Wireless Technologies, Inc.
Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective
holders.
Implications of Being an Emerging Growth Company
We are an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an emerging growth
company, unlike public companies that are not emerging growth companies under the JOBS Act, we will not be required to:
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provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”);
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provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations;
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comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;
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provide certain disclosure regarding executive compensation required of larger public companies or hold stockholder advisory votes on the executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); or
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obtain stockholder approval of any golden parachute payments not previously approved.
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We will cease to be an emerging growth
company upon the earliest of the:
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last day of the fiscal year in which we have $1.07 billion or more in annual revenues;
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date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30);
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date on which we issue more than $1.0 billion of non-convertible debt over a three-year period; or
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last day of the fiscal year following the fifth anniversary of our initial public offering (“IPO”).
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In addition, Section 107 of the JOBS
Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards, and we have elected to take advantage of such extended
transition period for complying with new or revised accounting standards.
We have elected to adopt certain of the
reduced disclosure requirements available to emerging growth companies. As a result of these elections, the information that we
provide in this prospectus may be different than the information you may receive from other public companies in which you hold
equity interests. In addition, it is possible that some investors will find our common stock less attractive as a result of these
elections, which may result in a less active trading market for our common stock and higher volatility in our stock price.
Recent Developments
Resignation of Director and Appointment
of New Director
On June 19, 2020, Sam Runco, one our directors,
notified us of his decision to resign from the Company’s board of directors (the “Board”), effective June 19,
2020. Mr. Runco served on the nominating and corporate governance committee of the Board (the “Nominating and Corporate Governance
Committee”). On June 22, 2020, the Board, pursuant to its powers under the Company’s
bylaws, appointed Sri Peruvemba as a member of the Board to replace Mr. Runco, effective June 22, 2020. Mr. Peruvemba will
serve as a director until the next annual meeting of the Company’s stockholders, at which time he will stand for election
until the annual meeting of the Company’s stockholders following his election, or his earlier resignation, retirement, or
other termination of service. Mr. Peruvemba was also appointed to serve on the Board’s audit committee (the “Audit
Committee”) and Nominating and Corporate Governance Committee.
Closing of June 2020 Public Offerings
On June 8, 2020, we closed a registered
direct offering (the “June 8th Offering”) for gross proceeds of approximately $5.8 million, before deducting
underwriting discounts and commissions and estimated offering expenses of (i) an aggregate of 2,275,000 shares of Common Stock
and (ii) warrants, with a term of 5.5 years, which are exercisable for an aggregate of up to 2,275,000 shares of Common Stock at
an exercise price of $2.55 per share, subject to customary adjustments thereunder. The net proceeds from the June 8th
Offering are being used for working capital, capital expenditures, product development, and other general corporate purposes, including
investments in sales and marketing in the United States and internationally. The June 8th Offering was conducted pursuant
to the Stock Purchase Agreement, dated June 4, 2020, by and between us and each of the Selling Stockholders (the “June 8th
Purchase Agreement”), as well as a placement agency agreement, dated June 4, 2020, between us and Maxim Group LLC, the placement
agent for such offering (“Maxim”).
On June 11, 2020, we closed a registered
direct offering (the “June 11th Offering”, and together with the June 8th Offering, the “June
2020 Offerings”) for gross proceeds of approximately $5.3 million, before deducting underwriting discounts and commissions
and estimated offering expenses of an aggregate of (i) 2,040,000 shares of Common Stock and (ii) warrants, with a term of 5.5 years,
which are exercisable for an aggregate of up to 2,040,000 shares of Common Stock at an exercise price of $2.61 per share, subject
to customary adjustments thereunder. The net proceeds from the June 11th Offering are being used for working capital,
capital expenditures, product development, and other general corporate purposes, including investments in sales and marketing in
the United States and internationally. The June 11th Offering was conducted pursuant to a Stock Purchase Agreement,
by and between us and each of the Selling Stockholders (the “June 11th Purchase Agreement and collectively with
the June 8th Purchase Agreement, the “Purchase Agreements”), as well as a placement agency agreement, dated
June 9, 2020, between us and Maxim, the placement agent for such offering.
The shares of Common Stock issued to the
investors that participated in the June 2020 Offerings were registered under the Securities Act pursuant to two separate prospectus
supplements to our currently effective registration statement on Form S-3 (File No. 333-233433), which was initially filed with
the SEC on August 23, 2019 and was declared effective on September 6, 2019 (the “Shelf Registration Statement”). We
filed the prospectus supplement to the Shelf Registration Statement for the June 8th Offering with the SEC on June 5,
2020, and we filed the prospectus supplement to the Shelf Registration Statement for the June 11th Offering with the
SEC on June 10, 2020. Pursuant to the Purchase Agreements, the Warrants were issued to such investors in concurrent private placement
transactions pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the
Securities Act and/or Regulation D promulgated thereunder. We agreed to register the shares of Common Stock underlying the warrants
issued in the June 2020 Offerings within 30 days after the closing of each of the June 2020 Offerings, pursuant to a resale registration
statement. We filed a registration statement to register all of the shares of Common Stock underlying such warrants with the SEC
on July 8, 2020, which was declared effective by the SEC on July 22, 2020.
Closing of April 2020 Public Offering
On April 23, 2020, we closed an
underwritten public offering (the “April 2020 Offering”) for gross proceeds of approximately $6.5 million,
before deducting underwriting discounts and commissions and estimated offering expenses of (i) 1,525,000 shares of
Common Stock and accompanying common stock purchase warrants (the “April 2020 Warrants”) to purchase up to
an aggregate of 1,525,000 shares of Common Stock at a combined public price of $3.25 per share of Common Stock and
accompanying April 2020 Warrant, (ii) pre-funded common stock purchase warrants to purchase up to an aggregate of
475,000 shares of Common Stock (the “April 2020 Pre-Funded Warrants”), and accompanying April 2020
Warrants at a combined public offering price of $3.24 per April 2020 Pre-Funded Warrant and accompanying April 2020
Warrant and (iii) warrants to purchase up to an aggregate of 100,000 shares of Common Stock, which Underwriters’
Warrants are issuable to Maxim, as the representative of the underwriters named therein (the “Representative”),
pursuant to that certain underwriting agreement, dated as of April 21, 2020, between us and the Representative (the
“Underwriting Agreement”). Pursuant to the Underwriting Agreement, we granted an option to the Representative to
purchase up to an aggregate of 300,000 additional shares of Common Stock and/or warrants to purchase up to an additional
300,000 shares of Common Stock within 45 days after the date of the prospectus forming a part of the registration statement
for the April 2020 Offering to cover over-allotments. On April 21, 2020, the Representative partially exercised
such over-allotment option and purchased warrants exercisable for up to an aggregate of 229,100 additional shares of Common
Stock, which resulted in additional gross proceeds to us of $2,291, excluding underwriting discounts and commissions.
PPP Loan
On May 3, 2020, we were granted a loan
(the “PPP Loan”) from Wells Fargo Bank, National Association (“Wells Fargo”) in the aggregate amount of
approximately $847,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The PPP Loan was funded
on May 7, 2020.
The PPP Loan, which is in the form of a
PPP promissory note and agreement, dated May 3, 2020 (the “Note Agreement”), matures on May 3, 2022 and bears interest
at a rate of 1.00% per annum, payable monthly commencing on November 1, 2020. The PPP Loan may be prepaid by us at any time prior
to maturity with no prepayment penalties. We intend to use the PPP Loan amount for payroll costs, costs used to continue group
health care benefits, rent, and utilities. Under the terms of the Note Agreement, certain amounts of the PPP Loan may be forgiven
if they are used for qualifying expenses, as described in the Note Agreement.
Nasdaq Notifications
On October 16, 2019, we received a
written notification (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that we were
not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing bid price of our Common Stock was below $1.00 per share
for the previous thirty (30) consecutive business days (the “Minimum Bid Price Requirement”). In order to regain compliance,
the closing bid price of our shares of Common Stock had to meet or exceed $1.00 per share for at least ten (10) consecutive
business days. On April 23, 2020, we received a notice from Nasdaq that the Nasdaq staff had determined that for the last
ten (10) consecutive business days, from April 9, 2020 through April 23, 2020, the closing bid price of the Common
Stock had been $1.00 per share or greater. Accordingly, we regained compliance with the Minimum Bid Price Requirement and this
matter has closed.
On November 18, 2019, we were officially
notified by Nasdaq that we did not comply with Listing Rule 5550(b) (the “Rule”), which requires a minimum
of $2,500,000 stockholders’ equity (the “Stockholders’ Equity Requirement”), among other listing criteria.
We were required to submit to Nasdaq a plan to regain compliance with the Stockholders’ Equity Requirement for consideration
by the Nasdaq Listing Qualifications staff (“Nasdaq Staff”) by no later than January 2, 2020. On January 2,
2020, we submitted a plan to regain compliance (the “Compliance Plan”) to the Nasdaq Staff. On March 23, 2020,
the Nasdaq Staff accepted the Compliance Plan and granted us an extension period pursuant to which we must regain compliance with
the Rule. Among other things, the terms of such extension include that we must complete an equity raise on or before May 18,
2020, and must publicly disclose on a Current Report on Form 8-K our prior non-compliance with the Rule and such completed
transaction that enabled us to regain compliance with the Rule. As discussed above, we completed an equity raise in the April 2020
Offering and, as a result, we believe that we have regained compliance with the Stockholders’ Equity Requirement, which we
have disclosed on a Current Report on Form 8-K filed with the SEC on May 11, 2020. Notwithstanding the terms of such
extension period, if we fail to evidence compliance with the Rule upon the filing of our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2020, the Nasdaq Staff will provide written notification that our Common Stock will
be delisted from Nasdaq, however we may appeal such delisting determination to the Nasdaq Hearing Panel.
On March 24, 2020, we were officially
notified by Nasdaq that we did not comply with Listing Rule 5605 (the “Audit Committee Rule”), which requires
that the Audit Committee include at least three independent directors. In accordance with Nasdaq’s Listing Rules, we have
been granted a cure period in order to regain compliance with the Audit Committee Rule, which period ends on (i) the earlier
of (x) our next annual stockholders’ meeting or (y) February 10, 2021 or (ii) if such annual stockholders’
meeting is held before August 10, 2020, then we must evidence compliance with the Audit Committee Rule no later than
that date. If we fail to evidence compliance with the Audit Committee Rule upon such period’s end, the Nasdaq Staff
will provide written notification that our Common Stock will be delisted from Nasdaq, however we may appeal such delisting determination
to the Nasdaq Hearing Panel. On June 24, 2020, with the addition of Sri Peruvemba to the Audit Committee, which became effective
on June 22, 2020, Nasdaq notified us that it has determined that we are in compliance with the Audit Committee Rule and the matter
has been closed.
There can be no assurance that we will
evidence compliance with the Stockholders’ Equity Requirement upon our filing of our Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2020, and, if we are unable to evidence compliance and we appeal any delisting determination
as a result of such non-compliance and request a hearing with the Nasdaq Hearing Panel, that the Nasdaq Hearing Panel will grant
our request for a suspension of delisting or continued listing on The Nasdaq Capital Market. Additionally, there can be no assurance
that we will be able to comply with Nasdaq’s other listing standards. If we do not regain compliance. If we fail to achieve
compliance with all applicable Nasdaq listing requirements, we may be delisted from Nasdaq.
Funding Agreement
As previously disclosed in our Annual
Report on Form 10-K filed with the SEC on March 25, 2020, on January 23, 2020, we entered into a funding
agreement, as amended (the “Funding Agreement”), which provided for the issuance to an unaffiliated accredited
investor of a convertible promissory note in the principal amount of $111,100, reflecting a 10% original issue discount, 500
shares of our Common Stock and a five-year warrant exercisable for 7,936 shares of our Common Stock at an exercise price of
$9.80 per share in consideration for $100,000, which was funded on January 24, 2020. Additionally, pursuant to the
Funding Agreement, such investor was granted a most favored nation right. As of the date of this prospectus, the outstanding
debt owed to such investor pursuant to the Funding Agreement has been fully repaid.
March 2020 Senior Secured Convertible
Promissory Note
On March 30, 2020, we completed a
private placement (the “March 2020 Private Placement”) of a senior secured convertible instrument (the “March 2020
Note”) and a warrant (the “March 2020 Warrant”) to purchase 227,679 shares of Common Stock at an exercise
price of $6.40 per share, pursuant to which Maxim Group LLC, the placement agent for this offering (“Maxim”), acted
as placement agent. The March 2020 Note and March 2020 Warrant were issued pursuant to a securities purchase agreement,
entered into as of March 22, 2020 (the “March 2020 Purchase Agreement”) by and between us and an institutional
investor (the “Investor”). The March 2020 Private Placement resulted in gross proceeds of $1,700,000, before fees
and other expenses associated with the transaction, including but not limited to, an $85,000 commitment fee payable to the Investor.
The net proceeds received by us in connection with the March 2020 Private Placement were used primarily for working capital,
debt repayment and general corporate purposes. Additionally, we issued Maxim a warrant to purchase up to an aggregate of 20,400
shares of Common Stock, subject to adjustment, as partial consideration for serving as placement agent in connection with the March 2020
Private Placement. As of the date of this prospectus, the outstanding debt owed to the Investor pursuant to the March 2020
Note has been fully repaid.
Reverse Stock Split
On March 31, 2020, we held a special
meeting of our stockholders, at which our stockholders approved an amendment to our 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-four
to one-for-twenty, and to grant authorization to the Board to determine, in its sole discretion, the specific ratio and timing
of the reverse stock split. In order to maintain compliance with Nasdaq listing requirements discussed above, our Board utilized
this authority and authorized a reverse stock split ratio of one-for-twenty, effective for trading on April 9, 2020.
Alexander Settlement Agreement and Letters
from Alexander Capital, L.P.
On April 3, 2020, we received a letter
(the “April 3rd Alexander Counsel Letter”) from counsel for Alexander, alleging that we were in
apparent breach of a certain engagement agreement, dated February 6, 2020, that we entered into with Alexander (the “Engagement
Agreement”), which appointed Alexander as our exclusive placement agent and financial advisor, due to our consummation of
the March 2020 Private Placement, in which Maxim acted as placement agent. Such letter also claimed that due to such alleged
breach, and in accordance with the terms of the Engagement Agreement, we owed Alexander an aggregate of $170,000 and warrants to
purchase up to 22,768 shares of Common Stock in connection with the March 2020 Private Placement.
On May 14, 2020, we entered into the
Alexander Settlement Agreement, pursuant to which, in consideration for Alexander releasing us from (a) all claims against
us arising out of the Engagement Agreement, other than indemnification for certain third-party claims, and (b) any further
obligations to provide Alexander with a preferential right to participate as an underwriter or placement agent in future offerings,
we agreed to (i) pay Alexander a one-time cash payment of $125,000 and (ii) issue to Alexander 50,000 shares of Common
Stock (the “Alexander Settlement Shares”) to be registered pursuant to a prospectus supplement to our registration
statement on Form S-3 that was declared effective by the SEC on September 6, 2019. Such prospectus supplement was filed with the
SEC on May 18, 2020. We also released Alexander from the same type of claims against Alexander, other than indemnification for
certain third-party claims. In connection with the Alexander Settlement Agreement, on May 14, 2020, we also entered into a
leak-out agreement with Alexander (the “Leak-Out Agreement”), pursuant to which Alexander is not permitted to sell
more than 5,000 shares of Common Stock in any trading day, commencing on May 14, 2020 (the date of the Leak-Out Agreement)
and ending on the date on which Alexander no longer holds any Alexander Settlement Shares. The foregoing descriptions of the Alexander
Settlement Agreement and the Leak-Out Agreement do not purport to be complete and such agreements are more fully described in our
Current Report on Form 8-K filed with the SEC on May 18, 2020.
About
This Offering
This prospectus relates to the offer and
resale by the Selling Stockholders of up to 141,149 shares of Common Stock. All of the Shares and Warrant Shares, when sold, will
be sold by the Selling Stockholders. The Selling Stockholders may sell the Shares and Warrant Shares from time to time at prevailing
market prices or at privately negotiated prices.
Shares Offered by the Selling Stockholders:
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91,062 Shares.
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Warrants Shares Offered by the Selling Stockholders:
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Up to 50,087 Warrant Shares.
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Shares of Common Stock outstanding after completion of this offering (assuming full exercise of the Warrants that are exercisable for Warrant Shares offered hereby):
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7,773,440 (1)
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Use of proceeds:
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We will not receive any of the proceeds from any sale of the Warrant Shares by the Selling Stockholders. We may receive proceeds in the event that any of the Warrants are exercised at their respective exercise prices per share which may result in gross proceeds of $486,299.60. Any proceeds that we receive from the exercise of the Warrants will be used for working capital and other general corporate purposes. See “Use of Proceeds.”
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Risk factors:
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An investment in the Common Stock offered under this prospectus
is highly speculative and involves substantial risk. Please carefully consider the “Risk Factors” section on page
12 and other information in this prospectus for a discussion of risks. Additional risks and uncertainties not presently known
to us or that we currently deem to be immaterial may also impair our business and operations.
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Nasdaq symbol:
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WISA
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Unless otherwise indicated, all information
in this prospectus refers to or assumes the effectiveness of our one-for-twenty reverse stock split effective on April 9, 2020.
(1) The number of shares of our Common
Stock outstanding prior to and that will be outstanding after this offering is based on 7,723,353 shares of Common Stock outstanding
as of July 22, 2020 and excludes (a) shares of Common Stock to be issued upon exercise of warrants and pre-funded warrants to purchase
an aggregate of up to 7,337,199 shares of Common Stock as of July 22, 2020, (b) 705 shares of restricted stock to be released to
a terminated employee in two equal tranches over the next 7 months pursuant to the terms of such employee’s restricted stock
agreement, (c) 20,000 unvested deferred shares (the “Deferred Shares”) under our 2018 Long-Term Stock Incentive Plan
(the “LTIP”), issued to Michael Howse, a member of our board of directors, pursuant to a Deferred Shares Agreement,
entered into as of January 4, 2019 and (d) 12,500 shares of Common Stock issuable upon conversion of 250,000 shares of our Series A
8% Senior Convertible Preferred Stock (the “Series A Preferred Stock”) issued to Lisa Walsh on April 18,
2019. Additionally, the number of shares of Common Stock that will be outstanding after this offering also includes 91,062 Shares
being registered for resale in this offering and assumes the issuance of 50,087 Warrant Shares being registered for resale in this
offering upon exercise of all of the Warrants issued to the Selling Stockholders in the February 2020 Private Placement.
RISK FACTORS
Holding shares of Common Stock involves
a high degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus and in the
documents that we incorporate by reference into this prospectus before you decide to accept any Shares or Warrant Shares. In particular,
you should carefully consider and evaluate the risks and uncertainties described under the heading “Risk Factors” in
this prospectus, or in the documents incorporated by reference herein. Any of the risks and uncertainties set forth in this prospectus,
as updated by annual, quarterly and other reports and documents that we file with the SEC and incorporate by reference into this
prospectus, could materially and adversely affect our business, results of operations and financial condition, which in turn could
materially and adversely affect the value of our Common Stock.
Risks Related to Our Business and Industry
We have incurred losses since inception.
We have had net losses for several years,
since inception, and had an accumulated deficit of approximately $187.7 million as of December 31, 2019, which includes a
net loss of approximately $12,038,000 for the year ended December 31, 2019, as compared to approximately $67,357,000 for the
year ended December 31, 2018. As of March 31, 2020, we had
an accumulated deficit of $190.4 million, which includes a net loss of $2,680,000 for
the three months ended March 31, 2020. If we are unsuccessful in implementing any initiatives to improve our revenues
in order to achieve profitability, it will have a material adverse impact on our business, prospects, operating results and financial
condition. There can be no assurance that the revenue that we generate will be able to support our operations or meet our working
capital needs.
Our independent registered public
accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue
as a going concern.
Our independent registered public accounting
firm has included in its report for the year ended December 31, 2019 an explanatory paragraph expressing substantial doubt
about our ability to continue as a going concern. Our consolidated financial statements 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. We have incurred
net losses each year since inception, including approximately an additional $12,038,000 of net loss during the year ended December 31,
2019 and a net loss of $2,680,000 for the three months ended March 31, 2020.
Our ability to continue as a going concern is contingent upon, other factors, our ability to raise additional capital through sales
of our securities, including this offering, and incurrence of debt. Additionally, future capital requirements will depend on many
factors, including the rate of revenue growth, the selling price of our 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 our products. These
factors raise substantial doubt about our ability to continue as a going concern. There is no assurance that additional financing
will be available at terms acceptable to us or at all. If we cannot continue as a viable entity, this could materially adversely
affect the value of the Shares.
Loss of key customers.
A small number of our customers represent
a significant percentage of our revenue. Although we may have agreements with these customers, these agreements typically do not
require any minimum purchases and do not prohibit customers from using competing technologies or customers from purchasing products
and services from competitors. Because many of our markets are rapidly evolving, customer demand for our technologies and products
can shift quickly. As of March 31, 2020, we had two customers accounting for 79% and 11% of accounts receivable. As of December
31, 2019, we had three customers accounting for 37%, 28% and 20% of accounts receivable. Sales to Guo Guang Electric Co., a Chinese
original device manufacturer that builds product for large consumer electronic companies, represented 66% of our net revenue for
the three months ended March 31, 2020.
Reliance on module manufacturers.
Our revenue from the sale of modules to
consumer electronics and speaker companies depends in large part upon the availability of our modules that implement our technologies.
Our manufacturers incorporate our technologies into these modules, which are then incorporated in consumer entertainment products.
We do not manufacture these modules, but rather depend on manufacturers to produce the modules which we then sell to our customers.
We do not control the manufacturers. While we have a longstanding relationship with our manufacturers, there can be no assurance
that our manufacturers will continue to timely produce our modules. Change in management of our manufacturers or a change in their
operations could negatively affect our production and cause us to seek other manufacturers which we may not be able to obtain on
the same or similar terms as our current manufacturers. This could have a negative effect on our operations.
We currently rely on semiconductor
manufacturers to manufacture our semiconductors, and our failure to manage our relationship with our semiconductor manufacturers
successfully could negatively impact our business.
We rely on a single contractor in
Japan for the production of our transmit semiconductor chip and a single contractor in China for the production of our
receive semiconductor chip. Our reliance on these semiconductor manufacturers reduces our control over the manufacturing
process, exposing us to risks, including increase production costs and reduced product supply. If we fail to manage our
relationships with these manufacturers effectively, or if a contract manufacturer experiences delays, disruptions, or decides
to end-of-life the components that it manufactures for us, our ability to ship products to our end-user customers could be
impaired and our competitive position and reputation could be harmed. In addition, any adverse change in our
manufacturers’ financial or business condition could disrupt our ability to supply quality products to our end-user
customers. If we are required to change manufacturers, we may lose revenue, incur increased costs and damage our customer
relationships. In addition, qualifying a new semiconductor manufacturer and commencing production can be an expensive and
lengthy process. As a result of any of these aforementioned disruptions, we would experience a delay in our order
fulfillment, and our business, operating results and financial condition would be adversely affected.
We face risks related to health epidemics
and other outbreaks, which could significantly disrupt our operations and could have a material adverse impact on us, and the recent
coronavirus outbreak could materially and adversely affect our business.
An outbreak of a new respiratory illness
caused by coronavirus disease 2019 (“COVID-19”) has resulted in millions of infections and hundreds of thousands of
deaths worldwide, as of the date of filing of this prospectus, and continues to spread across the globe, including to the United
States and Europe, the major markets in which we operate. The outbreak of COVID-19 or by other epidemics could materially and adversely
affect our business, financial condition and results of operations. If the coronavirus worsens in China, the United States and
Europe, or in other regions in which we have material operations or sales, our business activities originating from affected areas,
including sales, manufacturing and supply chain related activities, could be adversely affected. Disruptive activities could include
the temporary closure of manufacturing facilities used in our supply chain processes, restrictions on the export or shipment of
our products, significant cutback of ocean container delivery from China, business closures in impacted areas, and restrictions
on our employees’ and consultants’ ability to travel and to meet with customers. The extent to which COVID-19 impacts
our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which
may emerge concerning the severity of the virus and the actions to contain it or treat its impact, among others. COVID-19 could
also result in social, economic and labor instability in the countries in which we or our customers and suppliers operate.
If workers at one or more of our offices
or the offices of our suppliers or manufacturers become ill or are quarantined and in either or both events are therefore unable
to work, our operations could be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials
or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which
may negatively affect our financial condition or results of operations. The extent to which COVID-19 affects our results will depend
on future developments that are highly uncertain and cannot be predicted, including actions to contain COVID-19 or treat its effect,
among others.
We
may not be entitled to forgiveness of our recently received PPP Loan, and our application for the PPP Loan could in the future
be determined to have been impermissible or could result in damage to our reputation.
In
May 2020, we received proceeds of approximately $850,000 from a loan under the CARES Act PPP, a portion of which may be forgiven,
which we intend to use to retain employees, maintain payroll and make lease and utility payments. A portion of the PPP Loan
may be forgiven by the Small Business Administration (“SBA”) upon our application beginning 60 days but not later than
120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act
and pursuant to the Note Agreement, loan forgiveness is available for the sum of documented payroll costs, covered rent payments,
covered mortgage interest and covered utilities during the eight week period beginning on the date of loan approval. Not more than
25% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven is reduced if our full-time
headcount declines or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%.
Under the CARES Act, we will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued
interest, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan
will ultimately be forgiven by the SBA.
In
order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the
PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among
other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility
criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the broad objectives of the CARES Act PPP. At
the time that we had made such certification, we had missed more than one payroll payment for our employees and entered into the
Funding Agreement in order to assist us with making such payroll payments, and could not predict with any certainty whether we
would be able to raise the necessary financing to support continued operations, including, but not limited to, making such payroll
payments. Our situation has subsequently improved, as a result of, among other things, our closing of two registered direct offerings
in June 2020, and as a result of the funds that we received from the PPP Loan. The certification described above that we were required
to provide in connection with our application for the PPP Loan did not contain any objective criteria and was subject to interpretation. However,
on April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value
and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding
loan eligibility under the CARES Act PPP has resulted in significant media coverage and controversy with respect to public companies
applying for and receiving loans. If, despite our good-faith belief that we satisfied all eligible requirements for the PPP Loan,
we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP
Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject
to penalties, including significant civil, criminal and administrative penalties, and could be required to repay the PPP Loan in
its entirety. In addition, our receipt of the PPP Loan may result in adverse publicity and damage to our reputation, and a
review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial
and management resources.
Declines in or problems with the WiSA Association membership
could negatively affect our reputation.
We rely significantly on the members of
our wholly-owned subsidiary, WiSA, LLC, to uphold the standards and criteria of interoperable audio products. If we lose members
or new technology is developed that is easier to incorporate than ours, the WiSA Association may fail to maintain its active status
and the sales of our modules could diminish as well. In addition, failure of our members to adhere to our policies designed to
provide interoperability between audio systems could undermine the integrity of our brand.
Failure to stay on top of technology
innovation could harm our business model.
Our revenue growth will depend upon our
success in new and existing markets for our technologies. The markets for our technologies and products are defined by:
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rapid technological change;
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new and improved technology and frequent product introductions;
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changing consumer demands;
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evolving industry standards; and
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technology and product obsolescence.
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Our future success depends on our ability
to enhance our technologies and products and to develop new technologies and products that address the market needs in a timely
manner. Technology development is a complex, uncertain process requiring high levels of innovation, highly-skilled engineering
and development personnel, and the accurate anticipation of technological and market trends. We may not be able to identify, develop,
acquire, market, or support new or enhanced technologies or products on a timely basis, if at all.
Economic uncertainties or downturns,
or political changes, could limit the availability of funds available to our customers and potential customers, which could materially
adversely affect our business.
Current or future economic uncertainties
or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in the
United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market
fluctuations, political deadlock, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific
region or elsewhere, could cause a decrease in funds available to our customers and potential customers and negatively affect the
rate of growth of our business.
General worldwide economic uncertainty
and political changes in the United States and elsewhere could impact our business. Such conditions may make it extremely difficult
for our customers and us to forecast and plan future budgetary decisions or business activities accurately, and they could cause
our customers to reevaluate their decisions to purchase our solutions, which could delay and lengthen our sales cycles or result
in cancellations of planned purchases. Furthermore, during challenging economic times or as a result of political changes, our
customers may tighten their budgets and face constraints in gaining timely access to sufficient funding or other credit, which
could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance
for doubtful accounts, which would adversely affect our financial results.
We cannot predict the timing, strength
or duration of any economic slowdown, instability or recovery, generally or within any particular industry, or the impact of political
changes. If the economic conditions of the general economy or industries in which we operate worsen from present levels, or if
recent political changes result in less funding being available to purchase our solutions, our business, operating results, financial
condition and cash flows could be adversely affected.
A decline in discretionary consumer
spending may adversely affect our industry, our operations and ultimately our profitability.
Luxury products, such as speaker systems,
TVs, game consoles and PCs, are discretionary purchases for consumers. Any reduction in consumer discretionary spending or disposable
income may affect our industry significantly. Many economic factors outside of our control could affect consumer discretionary
spending, including the financial markets, consumer credit availability, prevailing interest rates, energy costs, employment levels,
salary levels, and tax rates. Any reduction in discretionary consumer spending could materially adversely affect our business and
financial condition.
Consumer spending weakness could
impact our revenue.
Weakness in general economic conditions
may suppress consumer demand in our markets. Many of the products in which our technologies are incorporated are discretionary
goods, such as home-theater systems. Weakness in general economic conditions may also lead to customers becoming delinquent on
their obligations to us or being unable to pay, resulting in a higher level of write-offs. Economic conditions may impact the amount
businesses spend on their speaker systems. Weakness in economic conditions could lessen demand for our products and negatively
affect our revenue.
We face intense competition in our
industry, and we may not be able to compete successfully in our target markets.
The digital audio, consumer electronics
and entertainment markets are characterized by intense competition, subject to rapid change, and are significantly affected by
new product introductions and other market activities of industry participants. Our competitors include many large domestic and
international companies that have substantially greater financial, technical, marketing, distribution and other resources, greater
name recognition, a longer operating history, broader product lines, lower cost structures and longer-standing relationships with
customers and suppliers than we do. As a result, our competitors may be able to respond better to new or emerging technologies
or standards and to changes in customer requirements.
Further, some of our competitors are in
a better financial and marketing position from which to influence industry acceptance of a particular product standard or a competing
technology than we are. Our competitors may also be able to devote greater resources to the development, promotion and sale of
products, and may be in a position to deliver competitive products at a lower price than we can, along with the potential to conduct
strategic acquisitions, joint ventures, subsidies and lobbying industry and government standards, hire more experienced technicians,
engineers and research and development teams than we can. As a result, we may not be able to compete effectively against any of
these organizations.
Our ability to compete in our current target
markets and future markets will depend in large part on our ability to successfully develop, introduce and sell new and enhanced
products or technologies on a timely and cost-effective basis and to respond to changing market requirements. We expect our competitors
to continue to improve the performance of their current products and potentially reduce their prices. In addition, our competitors
may develop future generations and enhancements of competitive products or new or enhanced technologies that may offer greater
performance and improved pricing or render our technologies obsolete. If we are unable to match or exceed the improvements made
by our competitors, our market position and prospects could deteriorate and our net product sales could decline.
Failure to effectively develop and
expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance
of our modules.
To increase total customers and customer
recognition of the WiSA Association products and to achieve broader market acceptance of our technology, we will need to expand
our sales and marketing organization and increase our business development resources, including the vertical and geographic distribution
of our sales force and our teams of account executives focused on new accounts and responsible for renewal and growth of existing
accounts.
Our business requires that our sales personnel
have particular expertise and experience in interoperability of audio systems, and the latest wireless audio technology. We may
not achieve revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel
with appropriate experience, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period
of time or if our sales and marketing programs are not effective.
Interruptions or performance problems
associated with technology and wireless technology outside of our control may adversely affect our business and results of operations.
We may in the future experience performance
issues due to a variety of factors, including wireless technology disruptions, human or software errors. If a wireless connection
is compromised, our products will not work as designed and our business could be negatively affected. In some instances, we may
not be able to identify the cause or causes of these performance problems within an acceptable period of time or a connection problem
may be out of our control and could deter customers from purchasing wireless audio components.
We expect to continue to make significant
investments to maintain and improve the performance of our modules. To the extent that we do not effectively address capacity constraints,
upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology,
our business, operating results and financial condition may be adversely affected.
Real or perceived errors, failures
or bugs in our modules could adversely affect our operating results and growth prospects.
Because our modules are complex, undetected
errors, failures or bugs may occur. Our module is installed and used in numerous audio systems of different brands with different
operating systems, system management software, and equipment and networking configurations, which may cause errors or failures
of our technology. Despite our testing, errors, failures or bugs may not be found in our modules until it is released to our customers.
Moreover, our customers could incorrectly implement or inadvertently misuse our modules, which could result in customer dissatisfaction
and adversely impact the perceived quality or utility of our products as well as our brand.
Any of these real or perceived errors,
compatibility issues, failures or bugs in our modules could result in negative publicity, reputational harm, loss of competitive
position or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer
relations or other reasons, to expend additional resources in order to correct the problem. Alleviating any of these problems could
require significant expenditures of our capital and other resources and could cause interruptions or delays in the use of our solutions,
which could cause us to lose existing or potential customers and could adversely affect our operating results and growth prospects.
We rely on the cooperation of our
customers to install our modules in their audio products.
Our modules are sold to our customers who
are consumer electronics companies. Our customers install the modules into their products. Our customers’ audio products
are sold to the general public who must then install the audio system into their homes or businesses. We do not oversee installation
of our products and therefore have no control over the end result. If a module is not installed correctly in a customer product
or an end consumer does not install their audio system correctly, our technology may not work properly, which could result in customer
dissatisfaction or have a material adverse impact on our reputation, our business and our financial results.
If we do not or cannot maintain cutting
edge technology and compatibility of our modules with products that our customers use, our business could suffer.
Our customers integrate our modules into
their products. The functionality and popularity of our technology depends, in part, on our ability to produce modules that integrate
into our customers’ products. Our customers may change the features of their technologies and audio systems as a whole may
advance technologically. Such changes could functionally limit or terminate the utility of our product, which could negatively
impact our customer service and harm our business. If we fail to maintain cutting edge technology and compatibility with the products
our customers produce, we may not be able to offer the functionality that our customers need, and our customers may not purchase
our modules, which would negatively impact our ability to generate revenue and have a material adverse impact on our business.
Our future quarterly results of operations
may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.
Our revenues and results of operations
could vary significantly from quarter to quarter as a result of various factors, many of which are outside of our control, including:
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the expansion of our customer base;
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the renewal of agreements with, and expansion of coverage by, existing customers;
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the size, timing and terms of our sales to both existing and new customers;
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the introduction of products or services that may compete with us for the limited funds available to our customers, and changes in the cost of such products or services;
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changes in our customers’ and potential customers’ budgets;
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our ability to control costs, including our operating expenses;
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our ability to hire, train and maintain our direct sales force, engineers, and marketing employees;
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the timing of satisfying revenue recognition criteria in connection with initial deployment and renewals; and
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general economic and political conditions, both domestically and internationally.
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Any one of these or other factors discussed
elsewhere in this prospectus or the documents incorporated by reference herein may result in fluctuations in our revenues and operating
results, meaning that quarter-to-quarter comparisons of our revenues, results of operations and cash flows may not necessarily
be indicative of our future performance.
Because of the fluctuations described above,
our ability to forecast revenues is limited and we may not be able to accurately predict our future revenues or results of operations.
In addition, we base our current and future expense levels on our operating plans and sales forecasts, and our operating expenses
are expected to be relatively fixed in the short term. Accordingly, we may not be able to reduce our costs sufficiently to compensate
for an unexpected shortfall in revenues, and even a small shortfall in revenues could disproportionately and adversely affect our
financial results for that quarter. The variability and unpredictability of these and other factors could result in our failing
to meet or exceed financial expectations for a given period.
Our sales are subject to fluctuation
as a result of seasonality, which is outside of our control.
Our sales are subject to the seasonality
of when consumers buy electronic products, generally in the third quarter leading up to the year-end holiday season. Our customers’
plans to complete and ship new products to meet this seasonal peak can critically impact our financial results should they miss
the holiday season. As a result of these factors, our financial results for any single quarter or for periods of less than a year
are not necessarily indicative of the results that may be achieved for a full fiscal year.
Our sales are subject to fluctuation
as a result of our customers’ new product introduction timelines and end-user adoption of our customers’ retail products,
both of which are outside of our control.
We, in conjunction with our customers,
are launching a new technology to the retail and consumer market. The consumer adoption rate at retail is a critical component
of our financial success and is currently an unknown component of our financial plans. The variability and unpredictability of
these and other factors could result in our failing to meet or exceed financial expectations for a given period. As a result of
these factors, our financial results for any single quarter or for periods of less than a year are not necessarily indicative of
the results that may be achieved for a full fiscal year.
We conduct international operations,
which exposes us to significant risks.
We have offices in California and Oregon,
but we also have employees in Taiwan and representatives in China, Japan and the Republic of Korea. Operating in international
markets requires significant resources and management attention and subjects us to regulatory, economic and political risks in
addition to those we already face in the United States. In addition, we invest time and resources in understanding the regulatory
framework and political environments of our customers overseas in order to focus our sales efforts. Because such regulatory and
political considerations are likely to vary across jurisdictions, this effort requires additional time and attention from our sales
team and could lead to a sales cycle that is longer than our typical process for sales in the United States. We also may need to
hire additional employees and otherwise invest in our international operations in order to reach new customers. Because of our
limited experience with international operations as well as developing and managing sales in international markets, our international
efforts may not be successful.
In addition, we will face risks in doing
business internationally that could adversely affect our business, including:
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the potential impact of currency exchange fluctuations;
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the difficulty of staffing and managing international operations and the increased operations, travel, shipping and compliance costs associated with having customers in numerous international locations;
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potentially greater difficulty collecting accounts receivable and longer payment cycles;
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the need to offer customer support in various languages;
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challenges in understanding and complying with local laws, regulations and customs in foreign jurisdictions;
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export controls and economic sanctions administered by the Department of Commerce Bureau of Industry and Security and the Treasury Department’s Office of Foreign Assets Control;
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compliance with various anti-bribery and anti-corruption laws such as the Foreign Corrupt Practices Act and United Kingdom Bribery Act of 2010;
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tariffs and other non-tariff barriers, such as quotas and local content rules;
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more limited protection for our IP in some countries;
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adverse or uncertain tax consequences as a result of international operations;
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currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars;
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restrictions on the transfer of funds;
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deterioration of political relations between the United States and other countries; and
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political or social unrest or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location.
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Also, we expect that due to costs related
to our international efforts and the increased cost of doing business internationally, we will incur higher costs to secure sales
to international customers than the comparable costs for domestic customers. As a result, our financial results may fluctuate as
we expand our operations and customer base worldwide.
Our failure to manage any of these risks
successfully could harm our international operations and adversely affect our business, operating results and financial condition.
We are dependent on the continued
services and performance of our senior management and other key personnel, the loss of any of whom could adversely affect our business.
Our future success depends in large part
on the continued contributions of our senior management and other key personnel. In particular, the leadership of key management
personnel is critical to the successful management of our Company, the development of our products, and our strategic direction.
We also depend on the contributions of key technical personnel.
We do not maintain “key person”
insurance for any member of our senior management team or any of our other key employees. Our senior management and key personnel
are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason
and without notice. The loss of any of our key management personnel could significantly delay or prevent the achievement of our
development and strategic objectives and adversely affect our business.
If we are unable to attract, integrate
and retain additional qualified personnel, including top technical talent, our business could be adversely affected.
Our future success depends in part on our
ability to identify, attract, integrate and retain highly skilled technical, managerial, sales and other personnel. We face intense
competition for qualified individuals from numerous other companies, including other software and technology companies, many of
whom have greater financial and other resources than we do. Some of these characteristics may be more appealing to high-quality
candidates than those we have to offer. In addition, new hires often require significant training and, in many cases, take significant
time before they achieve full productivity. We may incur significant costs to attract and retain qualified personnel, including
significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new
employees to our competitors or other companies before we realize the benefit of our investment in recruiting and training them.
Moreover, new employees may not be or become as productive as we expect, as we may face challenges in adequately or appropriately
integrating them into our workforce and culture. If we are unable to attract, integrate and retain suitably qualified individuals
who are capable of meeting our growing technical, operational and managerial requirements, on a timely basis or at all, our business
will be adversely affected.
Volatility or lack of positive performance
in our share price may also affect our ability to attract and retain our key employees. Many of our senior management personnel
and other key employees have become, or will soon become, vested in a substantial amount of Common Stock or warrants to purchase
Common Stock. Employees may be more likely to leave us if the shares they own or the shares underlying their vested warrants have
significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the warrants,
or, conversely, if the exercise prices of the warrants that they hold are significantly above the market price of our Common Stock.
If we are unable to appropriately incentivize and retain our employees through equity compensation, or if we need to increase our
compensation expenses in order to appropriately incentivize and retain our employees, our business, operating results and financial
condition would be adversely affected.
We may be subject to litigation for
a variety of claims, which could adversely affect our results of operations, harm our reputation or otherwise negatively impact
our business.
We may be subject to litigation for a variety
of claims arising from our normal business activities. These may include claims, suits, and proceedings involving labor and employment,
wage and hour, commercial and other matters. The outcome of any litigation, regardless of its merits, is inherently uncertain.
Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert
management attention and resources, and lead to attempts on the part of other parties to pursue similar claims. Any adverse determination
related to litigation could adversely affect our results of operations, harm our reputation or otherwise negatively impact our
business. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could materially
affect our future operating results, our cash flows or both.
Changes in financial accounting standards
may cause adverse and unexpected revenue fluctuations and impact our reported results of operations.
A change in accounting standards or practices
could harm our operating results and may even affect our reporting of transactions completed before the change is effective. New
accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes
to existing rules or the questioning of current practices may harm our operating results or the way we conduct our business.
We entered into a purchase order
with a company in which one of our directors is an executive officer, the fulfillment of which could cause such director to no
longer be independent.
In August 2019, we issued a $360,000
purchase order to Hansong Technology, a company in which our director, Helge Kristensen, serves as a vice president. Pursuant to
this purchase order, we will pay $360,000 to Hansong Technology for the purchase of certain products. To date in 2020, we have
paid $28,800 of the $360,000 that we owe Hansong Technology under such purchase order. Additionally, Hansong Technology purchased
$63,523 of our modules pursuant to purchase orders issued in 2019, with $22,923 received by us in 2019 and the remaining amount
expected to be received in 2020. Under Nasdaq’s corporate governance rules, our Board must be composed of a majority of “independent
directors.” Additionally, subject to certain limited exceptions, our Board’s audit, compensation, and nominating and
corporate governance committees also must be composed of all independent directors. Upon our payment in full to Hansong Technology,
it is very likely that Mr. Kristensen would no longer meet the qualifications of an “independent director,” in
which case our Board would no longer be composed of a majority of “independent directors” nor would our Board’s
committees be composed of all “independent directors.” In such event we would be required to take such actions, as
necessary, to regain compliance with the independence requirements under the Nasdaq rules, in order to avoid being delisted.
Risks Related to Our Intellectual Property (IP)
Failure to protect our IP rights
could adversely affect our business.
Our success depends, in part, on our ability
to protect proprietary methods and technologies that we develop or license under patent and other IP laws of the United States,
so that we can prevent others from using our inventions and proprietary information. If we fail to protect our IP rights adequately,
our competitors might gain access to our technology, and our business might be adversely affected. However, defending our IP rights
might entail significant expenses. Any of our patent rights, copyrights, trademarks or other IP rights may be challenged by others,
weakened or invalidated through administrative process or litigation.
As of July 22, 2020, we had 10 issued and
5 pending U.S. patents covering our technology. We have four patent applications pending for examination outside of the United
States. We also license issued U.S. patents from others. The patents that we own or license from others (including those that may
be issued in the future) may not provide us with any competitive advantages or may be challenged by third parties, and our patent
applications may never be granted.
Additionally, the process of obtaining
patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications
at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect
our IP, as the legal standards relating to the validity, enforceability and scope of protection of patent and other IP rights are
uncertain.
Any patents that are issued may subsequently
be invalidated or otherwise limited, allowing other companies to develop offerings that compete with ours, which could adversely
affect our competitive business position, business prospects and financial condition. In addition, issuance of a patent does not
guarantee that we have a right to practice the patented invention. Patent applications in the United States are typically not published
until 18 months after filing or, in some cases, not at all, and publications of discoveries in industry-related literature lag
behind actual discoveries. We cannot be certain that third parties do not have blocking patents that could be used to prevent us
from marketing or practicing our patented software or technology.
Effective patent, trademark, copyright
and trade secret protection may not be available to us in every country in which our software is available. The laws of some foreign
countries may not be as protective of IP rights as those in the United States (in particular, some foreign jurisdictions do not
permit patent protection for software), and mechanisms for enforcement of IP rights may be inadequate. Additional uncertainty may
result from changes to IP legislation enacted in the United States, including the recent America Invents Act, and other national
governments and from interpretations of the IP laws of the United States and other countries by applicable courts and agencies.
Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our IP.
We rely in part on trade secrets, proprietary
know-how and other confidential information to maintain our competitive position. Although we endeavor to enter into non-disclosure
agreements with our employees, licensees and others who may have access to this information, we cannot assure you that these agreements
or other steps we have taken will prevent unauthorized use, disclosure or reverse engineering of our technology. Moreover, third
parties may independently develop technologies or products that compete with ours, and we may be unable to prevent this competition.
We might be required to spend significant
resources to monitor and protect our IP rights. We may initiate claims or litigation against third parties for infringement of
our proprietary rights or to establish the validity of our proprietary rights. Litigation also puts our patents at risk of being
invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties
to assert counterclaims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded,
if any, may not be commercially viable. Any litigation, whether or not resolved in our favor, could result in significant expense
to us and divert the efforts of our technical and management personnel, which may adversely affect our business, operating results,
financial condition and cash flows.
We may be subject to IP rights claims
by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit our ability
to use certain technologies.
Companies in the software and technology
industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks and trade
secrets and frequently enter into litigation based on allegations of infringement or other violations of IP rights. In addition,
many of these companies have the capability to dedicate substantially greater resources to enforce their IP rights and to defend
claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that
have no relevant product revenues and against which our patents may therefore provide little or no deterrence. We have received,
and may in the future receive, notices that claim we have misappropriated, misused, or infringed other parties’ IP rights,
and, to the extent we gain greater market visibility, we face a higher risk of being the subject of IP infringement claims.
There may be third-party IP rights,
including issued or pending patents that cover significant aspects of our technologies or business methods. Any IP claims,
with or without merit, could be very time-consuming, could be expensive to settle or litigate and could divert our
management’s attention and other resources. These claims could also subject us to significant liability for damages,
potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could
also result in our having to stop using technology found to be in violation of a third party’s rights. We might be
required to seek a license for the IP, which may not be available on reasonable terms or at all. Even if a license were
available, we could be required to pay significant royalties, which would increase our operating expenses. As a result, we
may be required to develop alternative non-infringing technology, which could require significant effort and expense. If we
cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of
our software and may be unable to compete effectively. Any of these results would adversely affect our business, operating
results, financial condition and cash flows.
Risks Related to this Offering and Ownership
of Our Common Stock
We have been notified by Nasdaq of
our failure to comply with certain continued listing requirements and if we are unable to regain compliance with all applicable
continued listing requirements and standards of Nasdaq, our Common Stock could be delisted from Nasdaq.
Our Common Stock is currently listed on
Nasdaq. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards,
including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum
share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the
applicable listing standards.
In the event that our Common Stock is delisted
from Nasdaq and is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in
the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the
OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our Common
Stock, and it would likely be more difficult to obtain coverage by securities analysts and the news media, which could cause the
price of our Common Stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed
on a national exchange.
On November 18, 2019, we were officially
notified by Nasdaq that we did not comply with Listing Rule 5550(b) (the “Rule”), which requires a minimum
$2,500,000 stockholders’ equity (the “Stockholders’ Equity Requirement”), among other listing criteria.
We were required to submit to Nasdaq a plan to regain compliance with the Stockholders’ Equity Requirement for consideration
by the Nasdaq Listing Qualifications staff (“Nasdaq Staff”) by no later than January 2, 2020. On January 2,
2020, we submitted a plan to regain compliance (the “Compliance Plan”) to the Nasdaq Staff. On March 23, 2020,
the Nasdaq Staff accepted the Compliance Plan and granted us an extension period pursuant to which we must regain compliance with
the Rule. Among other things, the terms of such extension include that we had to complete an equity raise on or before May 18,
2020, and must publicly disclose on a Current Report on Form 8-K our prior non-compliance with the Rule and such completed
transaction that enabled us to regain compliance with the Rule. We believe that we have regained compliance with the Stockholders’
Equity Requirement as a result of the closing of the April 2020 Offering, which we have disclosed on a Current Report on Form 8-K
filed with the SEC on May 11, 2020. Notwithstanding the terms of such extension period, if we fail to evidence compliance
with the Rule upon the filing of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020,
the Nasdaq Staff will provide written notification that our Common Stock will be delisted from Nasdaq, however we may appeal such
delisting determination to the Nasdaq Hearing Panel.
On March 24, 2020, we were officially
notified by Nasdaq that we did not comply with Listing Rule 5605 (the “Audit Committee Rule”), which requires
that the Audit Committee include at least three independent directors. In accordance with Nasdaq’s Listing Rules, we have
been granted a cure period in order to regain compliance with the Audit Committee Rule, which period ends on (i) the earlier
of (x) our next annual stockholders’ meeting or (y) February 10, 2021 or (ii) if such annual stockholders’
meeting is held before August 10, 2020, then we must evidence compliance with the Audit Committee Rule no later than
that date. If we fail to evidence compliance with the Audit Committee Rule upon such period’s end, the Nasdaq Staff
will provide written notification that our Common Stock will be delisted from Nasdaq, however we may appeal such delisting determination
to the Nasdaq Hearing Panel. On June 24, 2020, with the addition of Sri Peruvemba to the Audit Committee, which became effective
on June 22, 2020, Nasdaq notified us that it has determined that we are in compliance with the Audit Committee Rule and the matter
has been closed.
In the event that we are delisted
from Nasdaq, our Common Stock may lose liquidity, increase volatility, and lose market maker support. See “Our
Company—Recent Developments” on page 8 of this prospectus regarding Nasdaq’s written notifications to the
Company. There can be no assurance that we will evidence compliance with the Stockholders’ Equity Requirement upon the
filing of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, if we are unable to
evidence compliance and we appeal any delisting determination as a result of such non-compliance and request a hearing with
the Nasdaq Hearing Panel, that the Nasdaq Hearing Panel will grant our request for a suspension of delisting or continued
listing on The Nasdaq Capital Market. Additionally, there can be no assurance that we will be able to comply with
Nasdaq’s other listing standards. If we fail to achieve compliance with all applicable Nasdaq listing requirements, we
may be delisted from Nasdaq.
In the event that our Common Stock
is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our Common Stock because
they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to
regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have
the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of
less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq if current
price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares
of Common Stock have in the past constituted, and may again in the future constitute, “penny stock” within the meaning
of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers
from effecting transactions in shares of our Common Stock, which could severely limit the market liquidity of such shares of Common
Stock and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with a net worth in
excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or
issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
(iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical limitations to prevent the described patterns from being established
with respect to our securities.
If we fail to make necessary improvements
to address the material weakness in our internal control over financial reporting identified by our independent registered public
accounting firm, we may not be able to report our financial results accurately and timely or prevent fraud, any of which could
cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and
cause the trading price of our Common Stock to decline.
Our independent registered public accounting
firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audits of our
consolidated financial statements as of and for the years ended December 31, 2019 and 2018, our independent registered public
accounting firm identified in their reports to the Audit Committee that we had material weaknesses in our internal control over
financial reporting due to (i) insufficient written policies and procedures for accounting and financial reporting with respect
to the requirements and application of both accounting principles generally accepted in the United States of America (“GAAP”)
and SEC guidelines and (ii) inadequate segregation of duties. A material weakness is defined in the standards established
by the Public Company Accounting Oversight Board (United States) as a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. Our management and independent registered public accounting
firm did not and was not required to perform an evaluation of our internal control over financial reporting as of and for the year
ended December 31, 2018 in accordance with the provisions of the JOBS Act. As of the period ended March 31, 2020, our Chief
Executive Officer and Chief Financial Officer performed such an evaluation and concluded that our disclosure controls and procedures
were ineffective as of the end of such period, which conclusion was based on the fact that as of the period ended March 31, 2020,
the Company had insufficient written policies and procedures for accounting and financial reporting with respect to the requirements
and application of both GAAP and SEC guidelines. In connection with the audit of our consolidated financial statements as of and
for the year ended December 31, 2019, our independent registered public accounting firm identified in their report to the
Audit Committee that we had a material weakness in our internal control over financial reporting due to insufficient written policies
and procedures for accounting and financial reporting with respect to the requirements and application of both GAAP and SEC guidelines.
If we fail to further increase and maintain
the number and expertise of our staff for our accounting and finance functions and to improve and maintain internal control over
financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of
the Sarbanes-Oxley Act, we may be unable to report our financial results accurately and prevent fraud. In addition, we cannot be
certain that any such steps we undertake will successfully remediate such material weakness or that other material weaknesses and
control deficiencies will not be discovered in the future. If our remediation efforts are not successful or other material weaknesses
or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis,
which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting
and cause our stock price to decline. As a result of such failures, we could also become subject to investigations by Nasdaq, the
SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, any of which could harm
our reputation and financial condition and divert financial and management resources. Even if we are able to report our consolidated
financial statements accurately and timely, if we do not make all the necessary improvements to address such material weakness,
continued disclosure of our material weakness will be required in future filings with the SEC, which could reduce investor confidence
in our reported results and cause our stock price to decline.
Our executive officers, directors
and principal stockholders own a significant percentage of our Common Stock and will be able to exert significant control over
matters subject to stockholder approval.
As of July 22, 2020, our directors,
executive officers and holders of more than 5% of our Common Stock, together with their affiliates, beneficially own 26.7% of
our outstanding shares of Common Stock, and three of our stockholders beneficially own 9.9%, 7.8% and 7.8% of our outstanding
shares of Common Stock, respectively. As a result, these stockholders have significant influence to determine the outcome of
matters submitted to our stockholders for approval, including the ability to defeat the election of our directors, amend or
prevent amendment of our certificate of incorporation, as amended, or bylaws or effect or prevent a change in corporate
control, merger, consolidation, takeover or other business combination. In addition, any sale of a significant amount of our
Common Stock held by our directors, executive officers and principal stockholders, or the possibility of such sales, could
adversely affect the market price of our Common Stock. Management’s stock ownership may also discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock
price or prevent our stockholders from realizing any gains from our Common Stock.
We will have broad discretion as
to any proceeds that we receive from the cash exercise by any holders of the Warrants, and we may not use the proceeds effectively.
We will not receive any of the proceeds
from the sale of the Shares or Warrant Shares by the Selling Stockholders pursuant to this prospectus. We may receive up to $486,299.60
in aggregate gross proceeds from cash exercises of the Warrants, based on the per share exercise price of the Warrants, and to
the extent that we receive such proceeds, we intend to use such proceeds for working capital and general corporate purposes. We
have considerable discretion in the application of such proceeds. You will not have the opportunity, as part of your investment
decision, to assess whether such proceeds are being used in a manner agreeable to you. You must rely on our judgment regarding
the application of such proceeds, which may be used for corporate purposes that do not improve our profitability or increase the
price of our shares of Common Stock. Such proceeds may also be placed in investments that do not produce income or that lose value.
The failure to use such funds by us effectively could have a material adverse effect on our business, financial condition, operating
results and cash flow.
Substantial future sales of shares of our Common Stock
could cause the market price of our Common Stock to decline.
We expect that significant additional capital
will be needed in the near future to continue our planned operations. Sales of a substantial number of shares of our Common Stock
in the public market following the completion of this offering, or the perception that these sales might occur, could depress the
market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.
We are unable to predict the effect that such sales may have on the prevailing market price of our Common Stock.
Moreover, after this offering, holders
of our warrants to purchase up to an aggregate of 4,802,319 shares of Common Stock (which includes holders of our warrants issued
to investors in the June 2020 Offerings to purchase up to an aggregate of 4,315,000 shares of Common Stock and holders of warrants
issued to the investor in the March 2020 Private Placement to purchase up to 227,679 shares of Common Stock) and the holder of 250,000
shares of our Series A Preferred Stock, or their respective transferees, will be entitled to specified rights with respect
to the registration of the offer and sale of their respective shares of Common Stock underlying such securities under the Securities
Act. On July 8, 2020, the Company filed a registration statement on Form S-1 with the SEC to register all of the shares of Common
Stock issuable upon exercise of all of the warrants issued to investors in the June 2020 Offerings, and such registration statement
was declared effective by the SEC on July 22, 2020. Registration of the offer and sale of such shares of Common Stock under the
Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon
the effectiveness of the registration. We have also registered all shares of Common Stock that we may issue under our LTIP. If
any such additional shares of Common Stock are sold, or if it is perceived that they will be sold, in the public market, the market
price of our Common Stock could decline.
A large number of shares may be sold
in the market following this offering, which may significantly depress the market price of our Common Stock.
The Shares and Warrant Shares sold in the
offering will be freely tradable without restriction or further registration under the Securities Act. As a result, a substantial
number of shares of our Common Stock may be sold in the public market following this offering. If there are significantly more
shares of Common Stock offered for sale than buyers are willing to purchase, then the market price of our Common Stock may decline
to a market price at which buyers are willing to purchase the offered Common Stock and sellers remain willing to sell our Common
Stock.
We may seek to raise additional funds,
finance acquisitions or develop strategic relationships by issuing securities that would dilute the ownership of the Common Stock.
Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading
price of our shares of Common Stock.
We have financed our operations, and we
expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity
and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further,
any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or pari passu
with, those of our Common Stock. Additionally, we may acquire other technologies or finance strategic alliances by issuing our
equity or equity-linked securities, which may result in additional dilution. Any issuances by us of equity securities may be at
or below the prevailing market price of our Common Stock and in any event may have a dilutive impact on your ownership interest,
which could cause the market price of our Common Stock to decline. We may also raise additional funds through the incurrence of
debt or the issuance or sale of other securities or instruments senior to our shares of Common Stock. The holders of any securities
or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilution from issuance
of additional securities and we grant superior rights to new securities over common stockholders, it may negatively impact the
trading price of our shares of Common Stock.
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their
voting rights; and provisions in our charter documents could discourage a takeover that stockholders may consider favorable.
Our certificate of incorporation, as amended,
authorizes the issuance of up to 20,000,000 shares of “blank check” preferred stock with designations, rights
and preferences as may be determined from time to time by our Board. 18,750,000 out of the 20,000,000 shares of preferred
stock have not been designated. Our Board is empowered, without stockholder approval, to issue a series of preferred stock with
dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our
common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing
a change in control. For example, it would be possible for our Board to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to change control of our Company.
The market price for our Common Stock
is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and lack
of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your shares of Common Stock at
or above the offering price of the Shares, which may result in substantial losses to you.
The market for our Common Stock is characterized
by significant price volatility when compared to the shares of larger, more established companies that have large public floats,
and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies
for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our
Common Stock is, compared to the shares of such larger, more established companies, sporadically and thinly traded. The price for
our Common Stock could, for example, decline precipitously in the event that a large number of our Common Stock is sold on the
market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our lack of profits
to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their
investment in the event of negative news or lack of progress, be more inclined to sell their shares of Common Stock on the market
more quickly and at greater discounts than would be the case with the stock of a larger, more established company that has a large
public float. Many of these factors are beyond our control and may decrease the market price of our Common Stock regardless of
our operating performance.
If and when a larger trading market
for our Common Stock develops, the market price of our Common Stock is still likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the offering price of the Shares.
The market price of our Common Stock may
be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including,
but not limited to:
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variations in our revenues and operating expenses;
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actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our Common Stock, other comparable companies or our industry generally;
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market conditions in our industry, the industries of our customers and the economy as a whole;
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actual or expected changes in our growth rates or our competitors’ growth rates;
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developments in the financial markets and worldwide or regional economies;
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announcements of innovations or new products or services by us or our competitors;
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announcements by the government relating to regulations that govern our industry;
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sales of our Common Stock or other securities by us or in the open market;
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changes in the market valuations of other comparable companies; and
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other events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the recent outbreak of COVID-19, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability.
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In addition, if the market for technology
stocks or the stock market in general experiences loss of investor confidence, the trading price of our Common Stock could decline
for reasons unrelated to our business, financial condition or operating results. The trading price of our shares of Common Stock
might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect
us. Each of these factors, among others, could harm the value of your Shares. In the past, following periods of volatility in the
market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against
us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely
affect our business, operating results and financial condition.
Neither we nor the Selling Stockholders
have authorized any other party to provide you with information concerning us or this offering.
You should carefully evaluate all of the
information in this prospectus and the registration statement of which this prospectus forms a part, including the documents incorporated
by reference herein and therein. We may receive media coverage regarding our Company, including coverage that is not directly attributable
to statements made by our officers, that incorrectly reports on statements made by our officers or employees, or that is misleading
as a result of omitting information provided by us, our officers or employees. Neither we nor the Selling Stockholders have authorized
any other party to provide you with information concerning us or this offering, and such recipients should not rely on this information.
Sales of a significant number of
shares of our Common Stock in the public markets or significant short sales of our Common Stock, or the perception that such sales
could occur, could depress the market price of our Common Stock and impair our ability to raise capital.
Sales of a substantial number of shares
of our Common Stock or other equity-related securities in the public markets, could depress the market price of our Common Stock.
If there are significant short sales of our Common Stock, the price decline that could result from this activity may cause the
share price to decline more so, which, in turn, may cause long holders of the Common Stock to sell their shares, thereby contributing
to sales of Common Stock in the market. Such sales also may impair our ability to raise capital through the sale of additional
equity securities in the future at a time and price that our management deems acceptable, if at all.
The requirements of being a U.S.
public company may strain our resources and divert management’s attention.
As a U.S. public company, we are subject
to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq,
and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our
legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our
systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our
business and operating results.
As a result of disclosure of information
in this prospectus and the registration statement of which this prospectus forms a part, as well as in filings required of a public
company, our business and financial condition is more visible, which we believe may result in threatened or actual litigation,
including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed,
and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary
to resolve them, could divert resources of our management and harm our business and operating results.
If securities or industry analysts
do not publish research or reports about our business, or publish negative reports about our business, our share price and trading
volume could decline.
The trading market for our Common Stock
may depend in part on the research and reports that securities or industry analysts may publish about us or our business, our market
and our competitors. We do not have any control over such analysts. If one or more such analysts downgrade or publish a negative
opinion of our Common Stock, our share price would likely decline. If analysts do not cover our Company or do not regularly publish
reports on us, we may not be able to attain visibility in the financial markets, which could have a negative impact on our share
price or trading volume.
We do not intend to pay dividends
on our Common Stock for the foreseeable future.
We have never declared or paid any cash
dividends on our Common Stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will
retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination
to pay dividends in the future will be at the discretion of our Board. Accordingly, investors must rely on sales of their Common
Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
FEBRUARY 2020 PRIVATE PLACEMENT
On February 28, 2020, we completed
the February 2020 Private Placement of $835,000 of units (the “Units”), each Unit consisting of (i) one (1) share
of Common Stock and (ii) a Warrant to purchase 0.50 of a share of Common Stock, at a price per Unit of $9.17. The Units were
issued pursuant to subscription agreements by and between us and the Selling Stockholders (other than Alexander) who were signatory
thereto. The February 2020 Private Placement, which was priced above market, resulted in gross proceeds of $835,000 before
fees and other expenses associated with the transaction. The proceeds of such offering were used primarily toward increasing stockholders’
equity in order to comply with Nasdaq Listing Rule 5550(b) and for general corporate purposes.
Pursuant to an underwriting agreement,
dated February 6, 2020, entered into between the Company and Alexander in connection with the February 2020 Private Placement,
the Company paid Alexander cash fees of $83,000 and agreed to issued Alexander a Placement Agent Warrant to purchase up to 4,553
Warrant Shares as compensation for serving as placement agent in connection with the February 2020 Private Placement. The Placement
Agent Warrant is exercisable at a per share price of $8.80, subject to adjustment upon stock splits, reverse stock splits, and
similar capital changes, and is exercisable at any time during the five-year period commencing on the date of issuance.
The Investor Warrants are exercisable to
purchase up to an aggregate of 45,534 Warrant Shares at an exercise price of $9.80 per share, subject to adjustment upon stock
splits, reverse stock splits, and similar capital changes. The Investor Warrants are exercisable immediately and will expire five
years from their date of issuance.
The exercise of the Warrants are subject
to beneficial ownership limitations such that each holder of such Warrant may exercise it to the extent that such exercise would
result in such holder being the beneficial owner in excess of 4.99% (or, upon election of such holder, 9.99%), which beneficial
ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in such limitation
will not be effective until 61 days following notice to us.
It is the aggregate of 141,149 shares of
Common Stock, consisting of 91,062 Shares and 50,087 Warrant Shares issuable upon exercise of the Warrants, that are being registered
for resale by the Selling Stockholders pursuant to the registration statement of which this prospectus forms a part.
SELLING STOCKHOLDERS
The shares of Common Stock being offered
by the Selling Stockholders include (i) the Shares issued to the Selling Stockholders (other than Alexander) in the February 2020
Private Placement, (ii) the Investor Warrant Shares issuable upon exercise of all of the Investor Warrants and (ii) the Placement
Agent Warrant Shares issuable upon the exercise of the Placement Agent Warrant. For additional information regarding the issuance
of these securities, see “February 2020 Private Placement” on page 25 of this prospectus. We are registering the
Shares and Warrant Shares in order to permit the Selling Stockholders to offer such shares for resale from time to time. Except
for the ownership of the Shares and Warrants, the transactions contemplated by the February 2020 Private Placement transaction
documents, and as disclosed in this section under “Material Relationships with Selling Stockholders”, none of the
Selling Stockholders have had any material relationship with us within the past three years.
The following table sets forth certain
information with respect to each Selling Stockholder, including (i) the shares of Common Stock beneficially owned by the Selling
Stockholder prior to this offering, (ii) the number of Shares and Warrant Shares being offered by the Selling Stockholder pursuant
to this prospectus and (iii) the Selling Stockholder’s beneficial ownership after completion of this offering. The registration
of the Shares and the Warrant Shares does not necessarily mean that the Selling Stockholders will sell all or any of such shares
of Common Stock, but the number of shares of Common Stock and percentages set forth in the final two columns below assume that
all shares of Common Stock being offered by the Selling Stockholders are sold. The final two columns also assume the exercise of
all of the Warrants held by the Selling Stockholders as of July 22, 2020, without regard to any limitations on exercise described
in this prospectus or in the Warrants. See “Plan of Distribution.”
The table is based on information supplied
to us by the Selling Stockholders, with beneficial ownership and percentage ownership determined in accordance with the rules and
regulations of the SEC, and includes voting or investment power with respect to shares of Common Stock. This information does not
necessarily indicate beneficial ownership for any other purpose. In computing the number of shares of Common Stock beneficially
owned by a Selling Stockholder and the percentage ownership of that Selling Stockholder, shares of Common Stock subject to warrants
held by that Selling Stockholder that are exercisable for shares of Common Stock within 60 days after July 22, 2020, are deemed
outstanding. Such shares of Common Stock, however, are not deemed outstanding for the purposes of computing the percentage ownership
of any other stockholder.
This prospectus covers the resale of up
to an aggregate of 141,149 shares of Common Stock that may be sold or otherwise disposed of by the Selling Stockholders. 91,062
Shares are currently held by the Selling Stockholders and up to 50,087 Warrant Shares are issuable to the Selling Stockholders
upon the exercise of the Warrants. The Warrants are immediately exercisable on the date of their issuance and expire five (5) years
from the date on which they became exercisable. The Investor Warrants are exercisable at an exercise price of $9.80 per share and
the Placement Agent Warrant is exercisable at an exercise price of $8.80 per share. See “February 2020 Private Placement”
in this prospectus for further details relating to the Shares, the Warrant Shares and the Warrants.
|
|
Number of
Shares of
Common
Stock Beneficially Owned Prior to
Offering(1)
|
|
|
|
Maximum
Number of
Shares of
Common
Stock
to be Sold
Pursuant to
this
Prospectus(2)
|
|
|
Number of
Shares of
Common
Stock
Beneficially Owned After
Offering(3)
|
|
|
Percentage
Beneficially
Owned
After
Offering(3)
|
|
Archero 2020 LLC (4)
|
|
|
4,091
|
(4
|
)
|
|
|
4,091
|
|
|
|
—
|
|
|
|
—
|
|
James L. Bellis Jr.
|
|
|
2,504
|
(5
|
)
|
|
|
2,454
|
|
|
|
50
|
|
|
|
*
|
|
John B. de Grandpre Jr.
|
|
|
8,127
|
(6
|
)
|
|
|
8,127
|
|
|
|
—
|
|
|
|
—
|
|
John Digregorio and Mary Jacquline Martinez Digregorio JTWROS
|
|
|
3,600
|
(7
|
)
|
|
|
3,600
|
|
|
|
—
|
|
|
|
—
|
|
C. Finnegan Faldi
|
|
|
4,091
|
(8
|
)
|
|
|
4,091
|
|
|
|
—
|
|
|
|
—
|
|
Fuhrman Family Trust (9)
|
|
|
3,436
|
(9
|
)
|
|
|
3,436
|
|
|
|
—
|
|
|
|
—
|
|
Scott J. Fuhrman - IRA (10)
|
|
|
25,535
|
(10
|
)
|
|
|
3,436
|
|
|
|
22,099
|
|
|
|
*
|
|
Gary M. Gibson and Robin Gibson
|
|
|
16,359
|
(11
|
)
|
|
|
16,359
|
|
|
|
—
|
|
|
|
—
|
|
Harvard Home Mortgage, Inc. (12)
|
|
|
12,269
|
(12
|
)
|
|
|
12,269
|
|
|
|
—
|
|
|
|
—
|
|
Peter L. Herner
|
|
|
4,091
|
(13
|
)
|
|
|
4,091
|
|
|
|
—
|
|
|
|
—
|
|
Jabco LP (14)
|
|
|
17,431
|
(14
|
)
|
|
|
16,931
|
|
|
|
500
|
|
|
|
*
|
|
Douglas J. Jensen
|
|
|
16,360
|
(15
|
)
|
|
|
16,360
|
|
|
|
—
|
|
|
|
—
|
|
Jacqueline Anne Matera
|
|
|
1,694
|
(16
|
)
|
|
|
1,694
|
|
|
|
—
|
|
|
|
—
|
|
Joshua A. McCoy
|
|
|
16,524
|
(17
|
)
|
|
|
16,524
|
|
|
|
—
|
|
|
|
—
|
|
Matthew P. McMahon
|
|
|
16,359
|
(18
|
)
|
|
|
16,359
|
|
|
|
—
|
|
|
|
—
|
|
Jameson P. Stull
|
|
|
3,387
|
(19
|
)
|
|
|
3,387
|
|
|
|
—
|
|
|
|
—
|
|
Nishan Vartanian
|
|
|
7,137
|
(20
|
)
|
|
|
3,387
|
|
|
|
3,750
|
|
|
|
*
|
|
Alexander Capital, L.P. (21)
|
|
|
16,458
|
(21
|
)
|
|
|
4,553
|
|
|
|
11,905
|
|
|
|
*
|
|
TOTAL
|
|
|
179,453
|
|
|
|
|
141,149
|
|
|
|
38,304
|
|
|
|
*
|
|
*Less than 1%
(1)
|
All of the Warrants that are exercisable for the Warrant Shares offered hereby contain certain beneficial ownership limitations, which provide that a holder of the Warrants will not have the right to exercise any portion of its Warrants if such holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to such exercise, provided that upon at least 61 days’ prior notice to us, a holder may increase or decrease such limitation up to a maximum of 9.99% of the number of shares of Common Stock outstanding (such limitation, a “Beneficial Ownership Limitation”). As a result, the number of shares of Common Stock reflected in this column as beneficially owned by each Selling Stockholder includes (a) any outstanding shares of Common Stock held by such Selling Stockholder, and (b) if any, the number of shares of Common Stock subject to the Warrants exercisable for the Warrant Shares offered hereby and any other warrants that may be held by such Selling Stockholder, in each case which such Selling Stockholder has the right to acquire as of July 22, 2020 or within 60 days thereafter and without it or any of its affiliates beneficially owning more than 4.99% of the number of outstanding shares of Common Stock as of July 22, 2020.
|
|
|
(2)
|
Represents the total number of Shares and Warrant Shares owned by each of the Selling Stockholders, assuming full exercise of the Warrants offered hereby.
|
|
|
(3)
|
The number of shares owned and the percentage of beneficial ownership after this offering set forth in these columns are based on 7,773,440 shares of Common Stock outstanding on July 22, 2020, which includes 7,723,353 shares of Common Stock outstanding as of such date and assumes the sale of all 91,062 Shares and full exercise of the Warrants that are exercisable for the 50,087 Warrant Shares offered hereby. The calculation of beneficial ownership reported in such columns takes into account the effect of the Beneficial Ownership Limitations in any warrants held by the Selling Stockholders after this offering.
|
|
|
(4)
|
Includes (i) 2,727 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,364 Warrant Shares. Valerie Romero Foohey and Samuel J. Archer, the members of Archero 2020 LLC, share voting and investment power with respect to the Shares and Warrant Shares held by Archero 2020 LLC in this capacity. Each of Ms. Foohey and Mr. Archer disclaims beneficial ownership over such securities listed except to the extent of their respective pecuniary interest therein.
|
|
|
(5)
|
Includes (i) 50 shares of Common Stock, (ii) 1,636 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 818 Warrant Shares.
|
|
|
(6)
|
Includes (i) 5,418 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 2,709 Warrant Shares.
|
|
|
(7)
|
Includes (i) 2,400 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,200 Warrant Shares.
|
|
|
(8)
|
Includes (i) 2,727 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,364 Warrant Shares.
|
|
|
(9)
|
Includes (i) 2,291 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,145 Warrant Shares. Howard D. Furhman, the trustee of the Fuhrman Family Trust, has the voting and investment power with respect to the Shares and Warrant Shares held by the Fuhrman Family Trust. Mr. Fuhrman disclaims beneficial ownership over such securities listed except to the extent of his pecuniary interest therein.
|
(10)
|
Includes (i) 22,099 shares of Common Stock, (ii) 2,291 Shares held by such Selling Stockholder and (iii) Warrants to purchase up to 1,145 Warrant Shares. Scott J. Furhman, the account holder of the Scott J. Fuhrman - IRA, has the power to vote and dispose of the Shares and Warrant Shares held by the Scott J. Fuhrman - IRA and may be deemed to be the beneficial owner of such shares of Common Stock, Shares and Warrant Shares.
|
|
|
(11)
|
Includes (i) 10,906 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 5,453 Warrant Shares.
|
|
|
(12)
|
Includes (i) 8,179 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 4,090 Warrant Shares. Gary Hart, the president and sole stockholder of Harvard Home Mortgage, Inc., has the power to vote and dispose of the Shares and Warrant Shares held by Harvard Home Mortgage, Inc. and may be deemed to be the beneficial owner of such Shares and Warrant Shares.
|
|
|
(13)
|
Includes (i) 2,727 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,364 Warrant Shares.
|
|
|
(14)
|
Includes (i) 500 shares of Common Stock, (ii) 11,287 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 5,644 Warrant Shares. J. Geddes Parsons, the general partner of Jabco LP, has the voting and investment power with respect to the Shares and Warrant Shares held by the Jabco LP. Mr. Parsons disclaims beneficial ownership over such securities listed except to the extent of his pecuniary interest therein.
|
|
|
(15)
|
Includes (i) 10,906 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 5,454 Warrant Shares.
|
|
|
(16)
|
Includes (i) 1,129 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 565 Warrant Shares.
|
|
|
(17)
|
Includes (i) 11,016 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 5,508 Warrant Shares.
|
(18)
|
Includes (i) 10,906 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 5,453 Warrant Shares.
|
|
|
(19)
|
Includes (i) 2,258 Shares held by such Selling Stockholder and (ii) Warrants to purchase up to 1,129 Warrant Shares.
|
|
|
(20)
|
Includes (i) 3,750 shares of Common Stock, (ii) 2,258 Shares held by such Selling Stockholder and (iii) Warrants to purchase up to 1,129 Warrant Shares.
|
|
|
(21)
|
Includes (i) warrants to purchase up to 4,553 shares of Common Stock issued to Alexander as partial compensation for serving as placement agent in connection with the February 2020 Private Placement and (ii) warrants to purchase up to an aggregate of 11,905 shares of Common Stock issued to Alexander. Rocco Guidicipietro, the managing partner of Alexander, has the voting and investment power with respect to such warrants held by Alexander. Mr. Guidicipietro disclaims beneficial ownership over such securities listed except to the extent of his pecuniary interest therein.
|
Material Relationships with Selling
Stockholders
In addition to the transactions described
above in “February 2020 Private Placement”, we have had the following material relationships with certain of the Selling
Stockholders in the last three (3) years:
Alexander Capital, L.P.
Jonathan Gazdak, a member of our Board,
currently serves as Managing Director – Head of Investment Banking for Alexander. Mr. Gazdak has been a member of the Board
since June 2015. Alexander has acted as the lead investment bank in a number of the Company’s private financings and as an
underwriter for the Company’s initial public offering (the “IPO”).
The Company signed an engagement letter
with Alexander in August of 2014 (the “August 2014 Engagement Letter”), under which Alexander earned a fee on total
investments by its clients. Alexander earned fees of $321,300 and $0 for the years ended December 31, 2018 and 2019, respectively,
under the August 2014 Engagement Letter. In connection with the August 2014 Engagement Letter, which was terminated immediately
prior to the IPO, Alexander was issued warrants to purchase a total of 29,420 shares of Common Stock, exercisable at prices between
$66.00 and $108.00 per share and for five years from the date of issuance, which warrants were subsequently distributed to certain
affiliates of Alexander and are not currently deemed to be beneficially owned by Alexander.
Pursuant to the underwriting agreement
entered into between the Company and Alexander in connection with the IPO (the “IPO Underwriting Agreement”), Alexander
was paid a cash fee of $900,000, as well as a non-accountable expense allowance of $120,000 and reimbursements of $100,000. Pursuant
to the IPO Underwriting Agreement, the Company issued Alexander a warrant to purchase up to 3,600 shares of Common Stock. Such
warrant is exercisable at a per share price of $125.00 and is exercisable at any time during the five-year period commencing 180
days from the effective date of the IPO, which period shall not exceed five years from such effective date.
On April 4, 2019, the Company signed another
engagement letter with Alexander under which Alexander earns a fee on total investments by its clients. In connection with the
issuance of the initial tranche of the Series A Preferred Stock, Alexander earned a fee of $80,000 and the Company agreed to issue
it a warrant to purchase up to 2,041 shares of Common Stock. Such warrant is exercisable at a per share price of $43.60 and is
exercisable at any time during the five-year period commencing 180 days from the effective date of the issuance of such Common
Stock, which period shall not exceed five years from such effective date.
On April 17, 2019, the Company entered
into an underwriting agreement with Alexander in connection with an offering by the Company of 203,787 shares of Common Stock,
pursuant to which Alexander was paid cash fees of $406,554 as well as a non-accountable expense allowance of $54,207 and reimbursements
of $100,000 and pursuant to which the Company agreed to issue a warrant to purchase up to 6,114 shares of Common Stock. Such warrant
is exercisable at a per share price of $33.20 and is exercisable at any time during the five-year period commencing 180 days from
the effective date of the issuance of such Common Stock, which period shall not exceed five years from such effective date.
On October 16, 2019, the Company entered
into another underwriting agreement with Alexander in connection with an offering by the Company of up to an aggregate of 125,000
shares of Common Stock, pursuant to which Alexander was paid cash fees of $131,250 as well as a non-accountable expense allowance
of $17,500 and reimbursements of $43,750 and pursuant to which the Company agreed to issue a warrant to purchase 3,750 shares of
Common Stock. Such warrant is exercisable at a per share price of $17.50 and is exercisable at any time during the five-year period
commencing one year from the effective date of the issuance of such stock, which period shall not exceed five years from such effective
date.
On May14, 2020, the Company entered
into a settlement agreement and release (the “Settlement Agreement”) with Alexander, pursuant to which, in
consideration for Alexander releasing the Company from (a) all claims against the Company arising out of an engagement
agreement, dated February 6, 2020, that the Company entered into with Alexander, other than indemnification for certain
third-party claims and (b) any further obligations to provide Alexander with a preferential right to participate as an
underwriter or placement agent in future offerings, the Company agreed to (i) pay Alexander a one-time cash payment of
$125,000 and (ii) issue to Alexander 50,000 shares of Common Stock (“Settlement Shares”). In connection with the
Settlement Agreement, on May 14, 2020, the Company also entered into a leak-out agreement with Alexander (the “Leak-Out
Agreement”), pursuant to which Alexander was not permitted to sell more than 5,000 shares of Common Stock in any
trading day, commencing on May 14, 2020 (the date of the Leak-Out Agreement) and ending on the date on which Alexander no
longer holds any Settlement Shares. The Settlement Shares were issued at a price of $2.32 per Share pursuant to a prospectus
supplement and accompanying base prospectus relating to the Company’s effective shelf registration statement on Form
S-3 (File No. 333-233433).
USE OF PROCEEDS
We will not receive any of the proceeds
from the sale of the Shares or the Warrant Shares by the Selling Stockholders pursuant to this prospectus. We may receive up to
$486,299.60 in aggregate gross proceeds from cash exercises of the Warrants, based on the per share exercise price of the Warrants.
Any proceeds we receive from the exercise of the Warrants will be used to for working capital and general corporate purposes. The
Selling Stockholders will pay any agent’s commissions and expenses they incur for brokerage, accounting, tax or legal services
or any other expenses that they incur in disposing of the shares of Common Stock. We will bear all other costs, fees and expenses
incurred in effecting the registration of the shares of Common Stock covered by this prospectus and any prospectus supplement.
These may include, without limitation, all registration and filing fees, SEC filing fees and expenses of compliance with state
securities or “blue sky” laws.
We cannot predict when or if the Warrants
will be exercised, and it is possible that the Warrants may expire and never be exercised. As a result, we may never receive
meaningful, or any, cash proceeds from the exercise of the Warrants, and we cannot plan on any specific uses of any proceeds we
may receive beyond the purposes described herein.
See “Plan of Distribution”
elsewhere in this prospectus for more information.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their
respective pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby
on any trading market, stock exchange or other trading facility on which the securities are traded or in private transactions.
These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when
selling securities:
|
·
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
·
|
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
|
|
|
·
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
·
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
|
|
|
·
|
privately negotiated transactions;
|
|
|
|
|
·
|
settlement of short sales;
|
|
|
|
|
·
|
in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
|
|
|
|
|
·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
|
|
·
|
a combination of any such methods of sale; or
|
|
|
|
|
·
|
any other method permitted pursuant to applicable law.
|
The Selling Stockholders may also sell
securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
In connection with the sale of the securities
covered hereby, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders
may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities
to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers
or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. We are requesting that each Selling Stockholder inform us that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the securities. We will pay certain fees and expenses incurred by us incident
to the registration of the securities.
Because the Selling Stockholders may be
deemed to be an “underwriter” within the meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which
qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. We
are requesting that each Selling Stockholder confirm that there is no underwriter or coordinating broker acting in connection with
the proposed sale of the resale securities by the Selling Stockholder.
We intend to keep this prospectus effective
until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without
regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with
the current public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii)
all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations
under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market
making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the
Common Stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders
and are informing the Selling Stockholders of the need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale (including by compliance with Rule 172 under the Securities Act).
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the issuance of the securities
offered hereby will be passed upon for us by Sullivan &Worcester LLP of New York, New York.
EXPERTS
The consolidated financial statements of
Summit Wireless Technologies, Inc. as of December 31, 2019 and 2018 and for each of the two years in the period ended December
31, 2019, incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2019,
have been so incorporated in reliance on the report (which contains an explanatory paragraph relating to the Company’s ability
to continue as a going concern as described in Note 1 to the consolidated financial statements) of BPM LLP, an independent registered
public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of a
registration statement on Form S-3 filed under the Securities Act. As permitted by the SEC’s rules, this prospectus
and any prospectus supplement, which form a part of the registration statement, do not contain all the information that is included
in the registration statement. You will find additional information about us in the registration statement and its exhibits. Any
statements made in this prospectus or any prospectus supplement concerning legal documents are not necessarily complete and you
should read the documents that are filed as exhibits to the registration statement or otherwise filed with the SEC for a more complete
understanding of the document or matter.
You can read our SEC filings, including
the registration statement, over the internet at the SEC’s website at www.sec.gov. We are subject to the information
reporting requirements of the Exchange Act, and we file reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information will be available for inspection and copying at the public reference room and website of
the SEC referred to above. We also maintain a website at www.summitwireless.com, at which you may access these materials
free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. However, the
information contained in or accessible through our website is not part of this prospectus or the registration statement of which
this prospectus forms a part, and investors should not rely on such information in making a decision to purchase our Common Stock
in this offering.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC permits us to “incorporate
by reference” into this prospectus the information contained in documents that we file with the SEC, which means that we
can disclose important information to you by referring you to those documents. Information that is incorporated by reference is
considered to be part of this prospectus and you should read it with the same care that you read this prospectus. Information that
we file later with the SEC will automatically update and supersede the information that is either contained, or incorporated by
reference, in this prospectus, and will be considered to be a part of this prospectus from the date those documents are filed.
We have filed with the SEC and incorporate by reference in this prospectus, except as superseded, supplemented or modified by this
prospectus, the documents listed below (excluding those portions of any Current Report on Form 8-K that are not deemed “filed”
pursuant to the General Instructions of Form 8-K):
|
•
|
our Current Reports on Forms 8-K and 8-K/A filed with the SEC
on February
12, 2020, March
3, 2020, March
26, 2020, April
3, 2020; April
8, 2020, April
21, 2020, April
24, 2020, May
7, 2020, May
11, 2020, May
11, 2020, May
18, 2020, May
18, 2020, June
5, 2020, June
8, 2020, June
10, 2020, June 11, 2020, June 23, 2020, and June 24, 2020; and
|
We also incorporate by reference into this
prospectus additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date hereof but before the completion or termination of this offering (excluding any information not deemed “filed”
with the SEC). Any statement contained in a previously filed document is deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in a subsequently filed document incorporated by reference
herein modifies or supersedes the statement, and any statement contained in this prospectus is deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained in a subsequently filed document incorporated by reference
herein modifies or supersedes the statement.
We will provide, without charge, to each
person to whom a copy of this prospectus is delivered, including any beneficial owner, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein, including exhibits. Requests should be directed
to:
Summit Wireless Technologies, Inc.
6840 Via Del Oro Ste. 280
San Jose, CA 95119
(408) 627-4716
info@summitwireless.com
Copies of these filings are also available
on our website at www.summitwireless.com. For other ways to obtain a copy of these filings, please refer to “Where
You Can Find More Information” above.
Summit Wireless Technologies, Inc.
91,062 Shares of Common Stock
Up to 50,087 Shares of Common Stock underlying
Warrants
PROSPECTUS
The date of this prospectus is July 23,
2020.
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