To: Bob Ferguson
WA Attorney General
Re: Kickstarter YARRA 3DX Complaint
Date: December 15, 2018
I am filing this complaint on behalf of myself and all other WA residents who pledged for the YARRA 3DX Kickstarter and Indiegogo campaigns because after raising $1,112,111 from 2,679 backers Comhear Inc. has failed to deliver the 3D sound bar system they had promised.
Summary of facts:
1) Comhear Inc. was founded in 2013 and has sold a commercial version of YARRA 3DX (“ProAV”) since 2016
2) On June 5, 2017 in association with a $12M Series A capitalization round Comhear Inc. appointed a new CEO (Gerry Chastelet) and added a new board member (
https://webcache.googleusercontent.com/ ... clnk&gl=us)
3) On October 27, 2017 Comhear Inc. raised $738,184 from 1,848 backers in their Kickstarter campaign “Yarra 3DX: The Most Advanced 3D Audio System in the World” (
https://www.kickstarter.com/projects/ya ... escription)
4) On October 27 I pledged $xxxxxx (shipping inclusive) for xxx Yarra 3DX sound bar systems
5) From October 27, 2017 through October 26, 2018 Comhear Inc raised an additional $373,927 from 831 backers in their Indiegogo campaign “Yarra 3DX: The Most Advanced 3D Audio System in the World” (
https://www.indiegogo.com/projects/yarr ... x/11003396#/)
6) In consideration of each pledge of $299 - $349 (plus shipping) backers were promised they would receive a Yarra 3DX sound bar system which had an estimated delivery date of March 2018
7) By soliciting and accepting funds through Kickstarter Comhear Inc agreed to Kickstarter Terms of Service which stated “When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers.”
8) In their YARRA 3DX Kickstarter and Indiegogo campaigns Comhear Inc. made the following representations:
a) “YARRA 3DX is the world's first 3D audio reproduction system that delivers the same immersive entertainment experience as multiple speaker home theaters and 3D audio headphones. This small "smart" sound bar makes you believe you're sitting in a high-end theater by delivering discrete left and right "beams" of binaural 3D audio to up to three individual locations.”
b) “The YARRA 3DX system is comprised of three components. The sound bar contains 12- 33m drivers and directs the beams of sound, the subwoofer reproduces all of the non-directional low frequencies, and the app, which is used to configure, control, and customize the system.”
c) “Using a patented beamforming technology called MyBeam™ and state-of-the-art software developed at 3D audio research facilities at leading universities.”…”MyBeam™ and YARRA 3DX are properties of Comhear, Inc.”
d) “Each YARRA 3DX comes with a limited 1-year warranty. Comhear Inc., the company behind the product was founded in 2013 and looks forward to releasing a range of products based on their portfolio of patents. We’ll be here for our backers!”
e) “Development: YARRA 3DX as a consumer project was initiated in late summer of 2014. The research done at the Spatial Audio Lab at UC San Diego under the direction of CSO and faculty member Peter Otto, resulted in our first sound bar — the ProAV model.”
f) “Tooling and Manufacturing Costs: The research has been done, concepts validated, working prototypes assembled and tested, and now we simply need to ramp up manufacturing. We've secured strong relationships and know the costs needed to produce tooling, purchase materials, manufacture units, and distribute the YARRA 3DX smart bar to consumers.” (emphasis added)
g) “The Timeline” published by Comhear Inc. in their YARRA 3DX Kickstarter and Indiegogo campaigns show (see figure below):
i) September 2017 - Tooling, parts orders, manufacturing begins
ii) November 2017 - First manufactured units arrive for testing
iii) February 2018 - Packing and assembly of final units
iv) March 2018 - Fulfillment of YARRA 3DX units to backers
h) “Risks and Challenges: Comhear Inc., the technology company behind the YARRA 3DX sound projection system has strong alliances with strategic partners that bring design, manufacturing, and distribution relationships to our product development and manufacturing. The beamforming technology at the core of the YARRA 3DX is already part of our commercial ProAV devices. The new consumer version offered as part of this campaign requires only marginal feature additions and a new industrial design. We are VERY confident that we can meet our commitments.” (emphasis added)
9) After raising $734,184 from 1,848 backers on Kickstarter Comhear Inc. made the following representations in their YARRA 3DX Kickstarter and Indiegogo campaign Project Updates:
a) Update #15 (Oct 27, 2017): “After 45 days, 1848 backers, and $738,184 raised, our focus changes to meeting the challenges associated with fulfilling pledges. Our primary goal is to maintain our development cycle and ship YARRA 3DX units by the end of March 2018 as promised. To that end, purchase orders have already been placed for parts, PCBs designed and finalized, assemblies and processes determined, and tooling produced. The first run of YARRA 3DX evaluation units will start coming off of the factory floor early in 2018.” (emphasis added)
b) Update #21 (Jan 9, 2018): “YARRA 3DX Debuts at CES 2018! The YARRA 3DX team will be demonstrating the YARRA 3DX and our patented MyBeam technology at the Venetian Tower Room 30 308 from January 9-12. Manufacturing News: Recent developments include the first EVTs (Engineering Verification Test) have arrived from our manufacturing partner and are in the demo room at the Venetian. All manufacturing tooling is completed and PCB (printed circuit boards) are being assembled. The production schedule is proceeding on track and we expect to be able to ship in late March 2018. (emphasis added)
c) Update #24 (Feb 16, 2018): “We now have pre-production samples created by our manufacturing partner for evaluation and review. The new units are slightly larger and sturdier than the one-off units.”…”After some final changes and revisions, progress continues to YARRA 3DX manufacturing. We take our commitment to ship YARRA 3DX units to our backers very seriously. The company is in the process of finalizing the volume build schedule with its manufacturing partner. There may be a slight shipping delay but the team is doing everything they can to get the product to you as quickly as possible while maintaining the highest possible quality standards.”.
In response to a backer question about delivery timing on Feb 27, 2018 Comhear Inc. stated: “There will be a “slight” delay as mentioned in the above update. The units are being assembled now that the design plan has been finalized. The app and YARRA 3DX units will be ready at the same time.” (emphasis added)
d) Update #25 (Mar 1, 2018): “Our production partner has all of the latest tweaks and is busy manufacturing our order.”.
In response to backer questions about delivery timing Comhear Inc. stated:
i) Mar 7, 2018: “The delivery is going to be delayed for a number of reasons...changes in some of the mechanical parts (to make the end legs sturdier) and some upgrades to the electronics. And don't forget the 6 weeks shipping time from China. I haven't been given an exact date but it won't be at the end of March.”
ii) March 19, 2016: “We expect to begin shipping during the second quarter” (emphasis added)
e) Update #26 (Apr 7, 2018): “Unfortunately, our initial delivery estimates were a little too optimistic — some last minute design changes, production tooling revisions, and long lead times on a few components have delayed our initial manufacturing run slightly. It takes a lot of careful planning and expertise to create state-of-the-art hardware and software. But we're making tremendous progress. The PCBs (printed circuit boards), drivers, physical enclosure, firmware, tooling, and application development are all being finalized.”
f) Update #27 (Apr 24, 2018): “Production Schedule — 2nd Quarter Shipping! Purchase orders for the initial run of YARRA 3DX units have been issued. Tooling is done and production will begin shortly. The schedule includes several evaluation and QC time buffers, which we hope to minimize during the manufacturing process. The first backer units should arrive sometime within the next 60 days. Our fulfillment partner has assured us that shipments to backers will begin as soon as the units are in house. It won't be long now.” (emphasis added)
g) Update #28 (May 22, 2018): “Here in San Diego, the tuning, QC work and app development has been progressing nicely.”…”Our goal is to make sure when you receive your Yarra 3DX this summer, that you'll love it as much as we do. We've had to make some tough decisions in delaying shipping but we believe it was necessary to ensure we were shipping the best product possible.” (emphasis added)
h) Update #31 (Jun 27, 2018): “In the final verification stages leading up to YARRA 3DX volume production for summer delivery, our manufacturing partner has identified a change required in their circuit board layout. This improvement is underway and they will re-verify upon completion. This change is expected to result in a shipment delay to late summer. The team is doing their best to minimize this time and improve delivery. We apologize for the inconvenience and will update you as soon as the manufacturer confirms schedule." (emphasis added)
i) Update #32 (Aug 17, 2018): ”We’re excited to share that the final version pre-production YARRA 3DX units are in! Our team has been hard at work fine tuning the firmware on these units to ensure the promised sound experience. Next Tuesday, August 21st from 1 p.m. to 3 p.m. we are inviting any and all backers to a demonstration at our San Diego office. Backers will be able to get a first-look at the product and hear the final version. (emphasis added)
j) Update #36 (Nov 7, 2018): “Having demonstrated and tested YARRA 3DX production prototype product with a limited group of crowdfunding backers in late summer, there have been numerous queries and speculations about what is happening with YARRA 3DX product production. As we have mentioned previously, Comhear has met with several setbacks in the development and production of YARRA 3DX. For the last few months, we have been engaged in various capital raising and other strategic discussions intended to allow us to reach a positive result. The results and timing of these initiatives have affected company operations and delayed YARRA 3DX new product production.” (emphasis added)
10) From a November 28, 2018 San Diego Tribune article titled “Where are the 3-D soundbars? Comhear crowdfunding backers want to know”: Comhear Chief Executive Gerry Chastelet said the company has experienced various delays in getting the sound bars produced. “It is a brand new, very complex product,” he said. “A product of the complexity of the YARRA 3DX you cannot build simply with the amount of money raised in crowdfunding.” Comhear is seeking to raise additional capital to finish production and fund other business initiatives, said Chastelet. “We have raised money in the past, and I am currently actively looking at raising another $4 million to $5 million,” he said. “Obviously we are doing everything possible to honor the commitments as soon as we can.”…Chastelet declined to say when crowdfunding backers might begin to receive their sound bars. But delivery is likely contingent on the company raising additional funds. (
https://www.sandiegouniontribune.com/bu ... story.html)
11) On December 8, 2018, Mark Waldrop, the former consultant who Comhear Inc. hired to manage the YARRA 3DX Kickstarter campaign stated: “There is still a chance that we will all get our sound bars, but I'm less optimistic than I was a few days ago. I spent a great deal of time, a fair amount of money, and substantial time reaching out to potential partners, distributors, influencers and others, and the Comhear CEO and board in the hope that I could raise the funds necessary to fund the production, deliver the product to all backers, and move the product into the mainstream. There was interest from a variety of sources but in the end management refused to let me have an exclusive in the consumer arena despite the fact that they have no interest in being in the consumer marketplace themselves.” (emphasis added)
Summary of Concerns:
1) Comhear Inc. is in breach of contract after raising over $1M from over 2,500 backers because they have failed to deliver the sound bars they promised
2) Comhear Inc. explicitly represented the YARRA 3DX was ready for production and the funds raised through crowdfunding would be used to actually manufacture it
3) The fact that Comhear Inc. claims they now need to raise $4M - $5M in order to ship backer’s sound bars (despite having raised over 20x their original fund raising goal from Kickstarter and Indiegogo backers) indicates one or more the following occurred:
a) Comhear Inc. misrepresented to backers that YARRA 3DX was ready for production when they raised backer funds
b) Comhear Inc. misappropriated backer funds to use for other purposes instead of manufacturing YARRA 3DX for backers
c) Comhear Inc. failed to disclose material information about their financial condition to backers when they raised funds on Kickstarter and Indiegogo
4) It apparent from Comhear Inc.’s words and their actions that:
a) Comhear Inc. has simply changed their mind about entering the consumer market with a 3-D sound bar and instead has decided to allocate available company resources (including those funds raised on Kickstarter and Indeigogo) towards advancing their position and products in the commercial market (which has been their primary focus since they were founded) rather than towards fulfilling their contractual obligation to Kickstarter and Indiegogo backers
b) Comhear Inc. has made repeated false statement to backers concerning manufacturing status, progress, and anticipated ship date of YARRA 3DX with the intent to hinder and delay discovery of their prior misrepresentations and/or misappropriation of backer funds
This complaint is appropriate for the WA Attorney General to pursue because:
1) Crowdfunding supports innovation, job creation, and economic growth
2) In order for crowdfunding to continue to prosper and grow it’s important to avoid the public’s perception of crowdfunding becoming negatively impacted by project creators who take advantage of backers trust and good faith
3) Considering that Comhear Inc. has raised so much money (over $1.1M) from so many backers (over 2,500) involvement of the WA Attorney General is sure to gain widespread attention which would have the desired effect of sending the message loud and clear that crowdfunding theft will not be tolerated
Complaint Addendum - December 20, 2018:
The following additional information supports:
a) Comhear Inc. failed to disclose material information while raising funds on Kickstarter and Indiegogo
b) Comhear Inc. misappropriated backer funds to support their money losing ProAV business instead of mass producing YARRA 3DX for Kickstarter and Indiegogo backers as contractually obligated
1) Comhear Inc. SEC Filing April 5, 2017 (
https://sec.report/Document/0001644600-17-000050):
a) Total assets most recent fiscal year end: $524,143
b) Total assets prior fiscal year end: $2,701,049
c) Cash & cash equivalents most recent fiscal year end: $459,822
d) Cash & cash equivalents prior fiscal year end: $2,606,532
e) Accounts receivable most recent fiscal year end: $0
f) Accounts receivable prior fiscal year end: $35,920
g) Short-term debt most recent fiscal year end: $325,475
h) Short-term debt prior fiscal year end: $1,553,665
i) Long-term debt most recent fiscal year end: $7,814,739
j) Long-term debt prior fiscal year end: $5,922,773
k) Revenue/sales most recent fiscal year end: $322,013
l) Revenues/sales prior fiscal year end: $328,172
m) Cost of goods most recent fiscal year end: $27,258
n) Cost of goods prior fiscal year end: $101,265
o) Net income most recent fiscal year end: ($4,461,695)
p) Net income prior fiscal year end: ($7,164,702)
2) The following statements by Mr. Mark Waldrop on December 7 - 10, 2018 are taken from the Q&A section of Mr. Waldrop’s blog post titled “A Weekend In London With YARRA 3DX!” (
http://www.realhd-audio.com/?p=6311). Mr. Waldrep’s statements are credible because as the consultant Comhear Inc. hired to run their Kickstarter campaign he routinely interacted directly with current and former management.
a) In response to the question: “Is there a ship date as of yet?” Mr. Waldrep as Admin responded: “The company is trying to raise additional funds to complete the manufacturing of the YARRA 3DX. As a result, there is no ship date. And there is a very real chance that the company fails to deliver the promised YARRA 3DX sound bars at all.” (emphasis added)
b) In response to the question: “I am a bit surprised that a more accurate forecast of the launch cost of the Yarra wasn’t made” Mr. Waldrep as Admin responded: “the funds raised through the campaign were sufficient to pay for the tooling, development, parts, and manufacturing of 2700 units. Unfortunately, the company spent the money on normal company operations and do not have the resources to complete the remaining tasks — including manufacturing and shipping.” (emphasis added)
c) In response to the statement: “I hope you are able to do something” Mr. Waldrep as Admin responded: “my efforts to rescue the YARRA 3DX have proven unsuccessful. I hope we all get out sound bars but it’s difficult to imagine how additional investors will be excited by spending $1M to make the backer community whole.”
d) In response to the statement: “I put money down based on your recommendation of product and company. I won’t be doing it again.” Mr. Waldrep as Admin responded: “I understand and regret the situation that occurred with the YARRA 3DX. When I started consulting for the company, the CEO and team were competent, honest, talented, and forthright. In the intervening many months, most of the original people have left including the former CEO and my close friend the CSO. The product was — and is — a genuinely innovative piece of engineering and does what it’s supposed to do. The operation of the company under new management has resulted in all of us — including me — losing our pledges. I’m sorry I wasn’t able to rescue the product. I tried.” (emphasis added)
e) In response to the statement “We funded a this project well over a year ago based on seeing a product that was fully designed and manufactured in enough units to demo its capabilities at trade shows & backer events. Based on all the conversations and updates there were evidently enough units made to distribute to a select group. Based on all that was presented who would not have thought that the project was not ready to launch? All the talk & PR about working out the details and tweaking the design now appears to have been a delay tactic for the company to make there exit. Above you say ‘The company is trying to raise additional funds to complete the manufacturing of the YARRA 3DX.’ Who would partner with a company that has mismanaged over $800K and failed to produce the product for the initial backers?” Mr. Waldrep as Admin responded: “Mike, everything I had stated was true. Company management spent the money that was supposed to mass produce the product on company operations. It is ready to manufacture and I spent lots of my own money, time, and resources finding partners to take it over and get you your bar. The CEO declined my offer. You’re right that I doubt anyone will invest additional funds in a company that has spent millions of dollars without anything to show for it.” (emphasis added)
f) In response to the question: “How can a CEO decline an offer when they have no intention of delivering a product that they accepted a lot of funds for? Sounds like fraud to me!” Mr. Waldrep as Admin responded: “He told me that he wants to reserve the right to offer the underlying technologies to other potential consumer electronics companies.”
g) In response to the statement: “So based on Comhear company press it seems that they raised funds via Kickstarter, and then migrated those funds to another crowdfunding site called Indiegogo, where they raised even more money. Then they proudly announced the relocation of their corporate headquarters to some new site, probably using all the crowdfunding money.” Mr. Waldrep as Admin responded: “it is indeed unfortunate that the company was severely mismanaged after we successfully raised enough money to develop, manufacture, and deliver all 2700 units to KS and IGG backers.” (emphasis added)
3) The following statements by Mr. Mark Waldrop are taken from the YARRA 3DX Comments Section on Kickstarter (
https://www.kickstarter.com/projects/ya ... e/comments):
a) About 2 months ago Mr. Waldrep posted:
i) “I find myself in a tough spot. Comhear owes me a lot of money for the DVDs I produced and hustled off the Chinese factory over a month ago. CEO Gerry Chastelet promised the first new funds received will be used to reimburse my out of pocket expenses. He assured me that a Comhear creditor would be wiring money last week. That has not happened. I'm trying to be patient but it's becoming increasingly difficult. I CAN confirm that the shipment from Zylux to Long Beach that Edwin uncovered was not the YARRA 3DX units. I have one of the final EVT units at my studio and can tell everyone that it looks and sounds very good. I will try to do a full review soon but without solid delivery assurances from the company, it's hard to get motivated to talk about the YARRA 3DX. I'm as frustrated and disappointed as the rest of you — maybe more so because I personally endorsed and promoted this product. I have directed all of the questions presented here AND more to the CEO. I understand and appreciate that any relevant information — including bad news — is better than continued silence. He responded, "as soon as the company is prepared to put out an update it will do so." He has also pointed out that the confidentiality provision of my consulting agreement limits what I can reveal about company business. I'm sure there will be repercussions from having written this comment. I began a drafting Part I of a lengthy blog post yesterday. It presents the background of my involvement with Comhear and the origins of the YARRA 3DX development. I hope to post it this week. Thanks for your patience.”
ii) “The YARRA 3DX units have not been mass produced at this point. I'm certain of that.”
iii) “As a former consultant to Comhear, I'm limited in what I can say right now. However, I can report that the CEO did authorize and I did receive payment for the DVDs that I shipped to the factory in China AND that I have had several conversations with him regarding the YARRA 3DX product, the lack of updates, and the chances for manufacturing to begin. I'm cautiously optimistic all of us backers will get the products we pledged for, but it's going to take some more time.”…”The YARRA 3DX product is fully developed, the software and app done, tooling completed, parts in place...all that is left is to manufacture them. I'm confident that a positive outcome is close. Thanks for your continued patience. I'm doing what I can.” (emphasis added)
b) About 1 month ago iMr. Waldrep (
[email protected]) posted: “Perry P.Teevens - CEO - LEFT in MID 2017 James E. Lucas - CFO - LEFT in LATE 2017 Thomas Craft - CTO - LEFT in MID 2018 Peter Otto - CSO - LEFT in MID 2018 Andy H. Sassine - Chairman Bradley W. Buss - Director Jon C. Sundt - Director Wyatt R. Briant - Director Perry P. Teevens - Director - LEFT in MID 2017 Jeffrey M. Claar - VP Engineering - Current Virakorn Insixiengmay - Engineer - Current”
c) 25 days ago Mr. Waldrep posted: “My consulting agreement with Comhear is over. I don't work for them now and I won't work for them in the future. All of my efforts are focused on getting the first 2700 units delivered to everyone that backed the project. I care about the product. I care about the backer community. And I care about the commitments that were made during the course of the campaign. There is a path forward that will make YARRA 3DX the success that it should be.”
d) 13 days ago Mr. Waldrep posted: “The reality is that Comhear has other products that tap into the same technology. They have a commercial product that using the same 12-speaker array, a smaller version for kiosks, and specialized software. The deal with Stampede, a pro A/V distributor, isn't representing the YARRA 3DX.”
e) 11 days ago Mr. Waldrep posted:
i) “Comhear, the company behind YARRA 3DX, is still operating” … ”They seemingly have received enough funding to continue paying the few remaining employees but are still looking for more money. The manufacturing run was halted because a substantial payment was required by Zylux in September that wasn't paid. In speaking with the CEO and others, I believe there is a small chance that they can raise additional funds and deliver the promised units. I offered a path forward with myself and partners acquiring YARRA 3DX but my offer was ultimately rejected. Is there a chance they will succeed? Yes, but there is no guarantee and the chances are slim IMHO.”
ii) “Company management and technical team members were behind the product until new money was raised and Gerry Chastelet was put in charge. The former employees left the company when the environment became toxic.”
iii) “@Comhear - Pursuant to Kickstarter Terms of Use I invoke my rights to demand a full refund for my pledge amount. Backer #6.” (Note: this was Mr. Waldrep’s personal pledge)
f) 9 days ago Mr. Waldrep posted: “The only person that has access to the Creator account is me. I have written to the CEO and copied several board members — including the chairman — about the situation unfolding on this site. I have not heard back yet but expect to after they've reviewed the comments and discussed their next move.”
Conclusion:
The above statements support that:
1) Comhear Inc. didn’t disclose material information to Kickstarter and Indiegogo backers while soliciting funds including:
a) It was losing hundreds of thousands of dollars each month
b) It had millions of dollars of long and short term debt
c) It was incapable of funding ongoing operations from current sales
2) Comhear Inc. raised sufficient funds from Kickstarter and Indiegogo backers to manufacture and ship YARRA 3DX then misappropriated backer funds to support operation of Comhear Inc.’s money losing ProAV business
WA Attorney General Yarra 3DX Complaint & Addendum (Redacted).doc
